FDIC to hit biggest US banks with $16B bill for SVB clean-up
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$16 Billion in fees (so far!) means you and I, regular people, will be paying to bail out SVB, it's bad decisions, and it's account holder's bad decisions. Wonderful.
Somehow we convinced a significant portion of the country that tax payers won't be responsible for these unprecedented bailouts. Yet, here we are.
This argument that you are using maybe didn't come directly from a corporate PR firm, but it sounds like one.
Lower rates on deposits, higher rates on borrowing, more fees and more marginal accounts and branches being closed.
- Basically zero interest rate accounts which are presumably counting on a combination of small accounts and lazy money not bothering to chase market-level interest rates and
- Banks/brokerages actively chasing people willing to park a lot of money in cash at current low-risk interest rates
4-5% may not beat inflation but it looks pretty good in a very uncertain economic environment.
Obviously other investments are riskier in the short term, but there's less risk long term in that you aren't guaranteed to lose purchasing power as you are with a MMF.
There's nothing invalid about saving. However whether you want to invest or save has very little to do with "circumstances" and everything to do with personal inclinations and needs.
MMFs that are majorly composed of overnight 1-day loans is so cash-money that when people say 'money' in finance, they usually mean MMFs.
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Legally speaking, 3 month bills / loans to the government are considered so reliable, that they are considered money-within-a-week in various regulations. Like Savings accounts or Money Market accounts.
IE: so many 3 month bills are being traded around, that it acts pretty damn like cash in practice, like real banking regulations.
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Yes, there is a sliding scale of money/cash into 30 year loans.
But financers call even 1 month stuffs basically money, pretty often. A MMF with overnight loans is absolutely more cash-like than anything else.
Even govt bonds have risk because although they have a predefined payout, their market price can fluctuate, sometimes a lot. But MMFs --- negligible risk.
I'm talking: https://investor.vanguard.com/investment-products/mutual-fun...
Which is 60%+ Fed Repos and the rest is US Treasuries of ~14 days of maturity or so on the average.
It is a 7 day lock up.
I've already 'upgraded' it from 4.85... which was a simple process of opening a new account and transferring it from the old account (all online on their website).
Funny enough, this bank is linked from the Ally website as their 'competitor' rates... https://www.ally.com/bank/no-penalty-cd/
If you are unbanked and work a W2 (paid in cash of course), you’re not on the hook for any of this!
It’s a coincidence that 99.99% of tax payers use the banking system.
This comment I made recently might shed some light on what I'm talking about...
https://news.ycombinator.com/item?id=35918310
It is possible to lend wrapped bitcoin as collateral, borrow against it and then re-lend out that borrowed thing (or use it to provide liquidity). Essentially enabling one to use that bitcoin "investment" to work for you instead of just being a shiny pet rock that HN loves to hate on. This is part of 'being your own bank' and a way to move away from the traditional banking system into something more decentralized.
DeFi is also why I say that the biggest threat to bitcoin is wrapped bitcoin. =) I haven't touched the actual bitcoin chain, in years. Given that other chains, which support wrapped bitcoin, now use a fraction of the energy they did previously (proof of stake), it makes the ESG arguments around bitcoin itself, go out the window.
How is it a bad-faith argument to accurately state that using Bitcoin as a "bank" would be far too volatile for basically everyone.
The alternative -- which doesn't require fad technology and buzzwords -- is "narrow banking": deposit-only banks that don't loan money out, and therefore can easily survive a 100% run on themselves.
Hell, this doesn't even need to be a for-profit business. The Fed should just offer consumer accounts, free of charge. The USPS could offer banking services at their branches for people who need to do things in-person.
If you use bitcoin as collateralized lending and borrowing, it becomes a banking tool. Price becomes far less of an issue as long as you maintain your collateralization ratios. Volatility of the price is at least partially offset by the utility of earning interest on it. This also has the effect of making bitcoin more scarce as it becomes more and more locked up as debt. 21m max, it becomes deflationary if enough people become their own bank.
> The Fed should just offer consumer accounts, free of charge.
No. We have enough government control of finances as it is.
Ever have the state board of equalization empty your bank account without any warning because they thought you owed them money? I have. It has been two years and I still haven’t gotten my money back.
The tax payers who voted for the politicians who drafted, voted for, and signed the legislation to relax banking (or any) regulations absolutely are responsible for this. But it's not like we can just send the bill to these people.
Perhaps one day we will get it through peoples' thick skulls that deregulation leads to tax payer bailouts - be that financial institution bail outs, the public paying to cleanup environmental disasters, or whatever. But I'm not hopeful. Most voters listen to the blatant lies and culture war BS being fed to them constantly.
Corporations are largely going to do whatever they can to make a buck. The best you can do to combat this is put laws in place to prevent bad behavior and have a strong enforcement arm to ensure that it's cheaper to follow the laws than it is to break them.
It seems the party line is that it's totally fine for the Fed to reject Narrow Banking [2] (which is as close to zero risk as you can get in developed world finance at the cost of fractional reserve banking), but hand wringing across them, FDIC, OCC, and the executive branch when JPM needs to save the banking system again [3] [4]. Who could ever foresee the cyclic crises of our own making /s.
EDIT: We could have an inherently stable banking system. Regulators collectively choose a lesser alternative.
[1] https://www.usatoday.com/story/news/politics/2023/04/13/svb-...
[2] https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...
[3] https://en.wikipedia.org/wiki/Panic_of_1907
[4] https://www.nytimes.com/2023/05/01/business/first-republic-j... | https://archive.is/IFBW7
(jpm customer)
1. How are loans originated? If they can only deposit at the Fed, how is anyone supposed to get a mortgage?
2. What value does the bank provide at that point? Why wouldn't the Fed just give people bank accounts?
2. Exactly [1]. Similarly to airlines, it’s a utility masquerading as a business. Everyone gets a demand deposit account, no fees, and instant payment functionality. Everyone else in the ecosystem is then either a lender or some sort of value add financial services provider.
Good questions!
[1] https://www.congress.gov/bill/116th-congress/senate-bill/357...
https://www.bloomberg.com/opinion/articles/2023-05-11/blacks... | https://archive.is/SrzgL
Also jpm is generally coming out ahead on this because they bought FRC on discount and because of the increased amount of deposits.
Everyone and everything responds to incentives. The message that FDIC just sent out is that you can make mistakes, you can mismanage your liquidity, and everyone else will pay to clean up your bill. What does that incentivize banks to do? It just encourages repeat behavior until there's nobody large enough to pay the difference. Not a recipe for stability.
Whereas, let's say SVB fell. Painful, yes. Lessons learned? Oh yes, nobody's going to let that happen again anytime soon; be it depositors or bankers. Long-term stability or short-term stability, pick one.
If you want to make this argument, the correct version is that depositors are incentivized to find the bank paying the highest interest regardless of risk. But I think this argument is very weak.
It's particularly weak given that depositors are deliberately not given clear information on the liquidity and balance sheets of their banks to avoid bank runs. The FDIC said that SVB was stable and in good shape a day before it failed.
The choice then is a) to accept some bank failures and depositor wipeouts, or b) inexorable pressure to centralize the risk structure until you have something remarkably like Gosbank[1] or 1 bank for everyone.
We tried the FDIC scheme, it was nice, but when the deposit limit is overtopped these days the bank is not stable.
Not only is it weak, it argues the wrong thing. Depositors should be incentivized to find the bank paying the highest interest, and should not have to worry about risk. That's kinda the point of the FDIC. Your average banking consumer is woefully unqualified to evaluate a bank's risk level, and that's how it should be.
SVB's customers took a risk putting more than $250k into their accounts. Sure, many of them had deals on loans and such that required them to keep high balances, but they also had the option to purchase additional depositor insurance. They chose not to, so I don't see why anyone should be forced to bail out their/SVB's losses, whether it's taxpayers as a whole, or even just customers at some subset of other banks. Remember, we're not talking about random average-Joe banking customer. These are businesses that should mostly know better.
A possible fix for this might be that banks could be required to notify customers when they have uninsured deposits, and suggest alternative insurance options. And in a case like SVB, where some depositors were contractually obligated to keep more than $250k there, perhaps the bank should be required to provide additional insurance along side deals where they require higher balances.
Everybody knew that they were insured only until $250,000. At my bank, it's on a plaque at every self-service ATM at every branch. Every single person who deposited in these banks knew this and decided to live with that risk. The risk came due, and now the FDIC has decided that banks that are too big or influential get an unlimited protection, but small little mom-and-pop banks won't get a penny past $250K if they screw up.
I think that if you actually put more than $250K in the bank and got hit, that's on you. You should've gotten insurance from elsewhere or used multiple banks. It literally exists and it's optional, it's called Depositors Insurance Fund Coverage (DIF), and it insures everything over $250K if you opt-in. You could also get MaxSafe, which insures up to $3.75 million. Wealthfront has a bank account with $5 million of insurance for those interested. Regular people should not pay a penny for bad risk-taking. To me, this reeks "Privatize the gains, socialize the losses."
Unless you are going foreign, FDIC insurance is legally mandatory. But be prepared for a hellish tax return the moment you open a foreign bank account - the IRS will demand a lot of paperwork.
Edit for reply: There is NCUA for credit unions; but the limits are the same, still mandatory, and it's the US Government again. Basically off-brand FDIC.
If you want your own insurance or you don’t want insurance, you can certainly do that by not using FDIC-insured accounts.
Maybe larger banks will cut marketing spend, and just keep fees low, or hike up fees on low net worth members to cut keep the top X%.
They will most likely want to make this loss transparent to the users they want to keep, and banks have a lot of levers they can pull.
Disclaimer: I work as a SWE at a neobank.
> probably the customers
Practically every person in the US has a bank account, so...
Also consider that most banks in the US are not being hit with this $16B bill. If you bank at one of the thousands of other banks, you won't be affected by this. And if you do bank at one of these banks, and they choose to increase fees or lower interest rates, you're free to vote with your wallet and move your deposits elsewhere.
I’ve seen it as low as $8bn [1].
[1] https://www.bloomberg.com/news/newsletters/2022-12-21/cityla...
[1] https://ktla.com/news/los-angeles-is-spending-up-to-837000-t...
The language of the housing first measure stipulated that the developers of the housing had to have previous experience developing permanent supportive housing. There were only two developers that qualified, making them for all practical purposes no-bid contracts.
LA could've sheltered every human being on the streets with that money, and still would've had hundreds of millions of dollars to purchase cheaper, existing housing. That whole thing was just wicked, brazen corruption that extended the needless suffering of everyone living on the street.
Possibly. But you need to address the fact that a lot of these folks need expensive medical assistance. That isn't just housing.
Somewhere around 15% of SF homeless have a traumatic brain injury. That's about 1 in 8 homeless who desperately need expensive medical assistance.
Single payer/medicare for all would have a larger impact on the homeless than mere housing or cash.
People who quote a number like $8B forget that proposed solutions to the problem can actually change the scope of the problem.
I'm sure that while the number of homeless might be 600K, the number of close-to-homeless is likely at least 10X that number.
It is actually a pretty bad thing for society how much people are paid to optimize ads and dark patterns for example - something that is absolutely of zero net benefit to society as a whole. I think there should be a tax on anyone working in ad-space.
But that's just one example - there are many other possible behavioral changes that can happen that will alter the cost computed up front even more (i.e. we're not even considering fraud with people applying for free housing and how much $ it will take to catch the fraud and deal with it).
I think we should advocate for solutions, as long as we keep in mind the true potential costs.
System is working out nicely actually.
It's unfortunate that a sizable fraction of HN comments veer into sloganeering nowadays but I don't blame the parent, there are simply not that many interesting one-liners left to say that hasn't been said dozens of times already after 35 million comments.
I don't understand your point. Those other items are government services that I receive in exchange for paying taxes. Banking is a private for-profit enterprise, except when they mess up, then I pay for it. How are they the same?
Just the same, not everyone "uses" bank bailouts, but when they do, it prevents other problems in society.
The only reason you'd be against it is because you think you will _never_ use a bank bailout, so in your mind, you're paying a tax for a benefit which you will never receive.
But then why isn't this the same argument used for regular welfare?
Naturally bank shareholders should lose everything before tax payers and the last thing we should do is stop the destruction of an industry caused by its own lobbying. Its brokerage accounts for everyone..
It'll never happen though. They have too much political power. The Vice documentary about the 2008 financial crisis has some interesting tidbits. They talk about how the global banking system is at risk of collapse in one part while another part says any deals that take away executive bonuses would be rejected.
Let that sink in. The US, with the most powerful government in the world, couldn't even take away executive bonuses to sell the public on a bailout plan that would save the banking system. It's crazy.
Absent legislation, the United States can’t retroactively break private contracts. The proper thing to do, what we’ve done in the recent bank failures, is to break the bank that wrote those contracts.
Well, they didn't need to. That was the problem. We've since fixed it by requiring clawbacks and improving the ability for the FDIC to e.g. put SVB into receivership.
So write that legislation! The fact that such legislation in the wake of 2008 was so politically unpopular speaks volumes.
SVB’s failure had nothing to do with Glass-Steagall. They had no investment bank to speak of.
It’s not bailing out SVB. It’s bailing out its depositors. Your broader point stands–there was a bail-out where we were promised there would be none. But unlike in the GFC, the bank itself was not bailed out.
Ideally we want no bank runs, confidence in the system, and banks that keep their risk profile low enough that they can survive a big chunk of their depositors deciding to take their money out. What changes have been made since SVB's failure to achieve this? What confidence do we have that another SVB won't happen next year or whenever?
but if people start taking money out of banks and start putting money in fed funds/money market, then these kinda problems will repeat again.
but most likely - failing banks will be just acquired by larger competitors, and thats it
Worth considering is the impact on us regular people if SVB's depositors hadn't been made whole. It seems highly likely we'd all be financially less well off.
> Somehow we convinced a significant portion of the country that tax payers won't be responsible for these unprecedented bailouts. Yet, here we are.
Just to be clear: tax payers aren't going to be paying this $16.5 billion, and the intervention is not unprecedented.
Obviously, this will increase the operating costs for banks in the form of deposit insurance fees, and that will effectively be born by shareholders and customers of said banks, particularly depositors. The costs will consequently be borne proportionately to the amount of money one has on deposit. Given the wealth disparities in this country, "regular people" won't be shouldering much of the burden.
You could certainly argue that "the wealthy" will somehow find a way to transfer their costs to "regular people", but by that same logic, regular people would have been paying for the costs incurred from NOT intervening with SVB, as this was just a tiny fraction of the uninsured deposits. Beyond that, because US banks would be perceived as less stable, the operating costs for banks would have certainly increased anyway, and by far more, as US bank bonds would be devalued due to the increased risk.
The idea that "rich people who made bad decisions" are being "bailed out" by "regular people" is a misnomer. Everyone was "bailed out" by the FDIC. The fact that everyone benefits from the FDIC's intervention is what creates the problematic dynamic in the first place.
"The proposal spares the vast majority of the US’s 4,500 FDIC-insured banks, and the fees are computed based on banks’ uninsured deposits on the grounds that $15.8bn of the $18.5bn cost of the SVB and Signature losses were due to the coverage of accounts larger than the $250,000 limit, and most of those accounts are in large banks."
If you bank at one of the 4,500 other banks, they do not have any additional fee as part of this special assessment. If you bank at one of the banks that has this special assessment, it's like all other fees the bank pays as the cost of doing business. That cost went up, and if they choose to pass it on then it should make them less competitive which would in theory have you bank at some place smaller which then in theory would have less of a FDIC risk. All in theory as the invisible hand of the market isn't always so straight forward.
The equity owners of SVB were (correctly) zeroed. They were not bailed out.
The account holders were bailed out. The regulators feared the risk of contagion more than moral hazard. I'm inclined to agree.
With some luck, it will inject a bit more realism into their lobbying around regulation.
This is like your car insurance company levying a fee on everyone every time someone gets in an accident. It’s not insurance, it’s transferring one bank’s losses to all others in an arbitrary manner.
> The Deposit Insurance Fund (DIF) balance was $128.2 billion on December 31, 2022, up $2.8 billion from the end of the third quarter.
https://www.fdic.gov/about/strategic-plans/strategic/insuran...
Many auto insurance policies include risk indicators based on location, age, educational levels, and similar factors. If members of that cohort prove to be a higher risk than earlier actuarial models had presumed, rates increase.
That's similar in general spirit to what's happening here.
They also wield the authority of the federal government, which is the authority of the people, represented more or less collectively, and which is operating under the principle of maximizing social utility, in contrast to the insurance company in your metaphor which is trying to maximize profits for its shareholders.
This is going to be a fun one to track. I fully predict the big banks will game their own deposit holdings to not fall into this category. A year is plenty of time for them to find some loophole.
Ha! Of course they do.
All it takes is a letter or phone call advertising a new cash management account that holds overnight treasuries. Customers can sign up and move their $250K+ deposits (which technically aren’t insured anyway) to that non-deposit account.
EDIT: I'm not saying the system can't, for a lack of a better word, be gamed, but ultimately that requires action on the depositors end, not necessarily the bank(s).
EDIT 2: Which means that any balance over that 250k in the same category would, in theory, count towards an institution's uninsured deposit balance.