But if what happened with SVB is any indicator, I am sure all the large commercial property owners will get a bailout. Small ones will be on their own.
As for the Cities themselves (property taxes), I think this is were issues lie. Maybe time to think about selling municipal bonds ?
Its an argument that creates a bailout of whoever we want, as long as they're within 6 degrees of SVB. [^1]
A huge rhetoric win, a loss for understanding.
[^1]: https://en.wikipedia.org/wiki/Six_Degrees_of_Kevin_Bacon
After all, startups take venture capital money from the rich and spend it primarily on t-shirts and catering - which primarily comes from small businesses who hire local unskilled labour.
Marx would be proud of the FDIC for their work.
The depositors, regardless of wealth, were lied to about the safety of their funds. It was roughly fraud - it wasn't their fault - they didn't take excess risk. How is it a bailout to let them keep their money?
And if the FDIC is really going to offer unlimited depositor protection, they’re going to need a lot more than the 100-200B in the DIF.
I disagree with that characterization.
The FDIC refunds depositors using money (assessments) they collect from member banks. So in essence, unless the government does something special to inject funds directly into the FDIC, the remaining FDIC member banks would likely see their assessment rates go up to cover the costs of these bank failures.
From https://www.fdic.gov/news/speeches/2023/spmar2723.pdf:
> "any losses to the FDIC’s Deposit Insurance Fund (DIF) as a result of uninsured deposit insurance coverage will be repaid by a special assessment on banks as required by law."
My point is that the FDIC refunding more than 250k wasn't a bailout of the banks because FDIC insured banks are the ones who fund the FDIC.
FDIC assessments and taxes are different. You can over-simplify mentally to a tax, but that doesn't make it true.
The FDIC runs more like an insurance provider than a run-of-the-mill government agency.
How is it a bailout to let them keep their money? At best its an "internal banking restructuring in favor of the depositors".
SVB's depositors were primarily businesses with more than $250,000 in an account. Over 90% of depositors(google for exact percenatge) had more than 250,000 in the account.
So who was the bailout for? Not the average guy on the street...
> So who was the bailout for? Not the average guy on the street...
The "bailout" (badly named) was for the average people working at these companies. Their families that wouldn't have gotten a paycheck. The grocery stores they couldn't have bought from.
Payroll accounts should be 100% FDIC insured the same why it works in many other countries.
Perhaps, but they are not so it is a bailout.
"The "bailout" (badly named) was for the average people working at these companies."
That jumps to a conclusion and fails to recognize the business owes a debt required to be paid by law to the employee for the work they have performed in the previous weeks.
I don't want to see banks fail like any of you folks, but the reality is responsibility lies somewhere and that somewhere isn't in more FDIC insurance. Business management is just as culpable as the banking staff in maximizing profit and maintaining proper liquidity and insuring working capital is secure.
Yes, and this is why $20 BB from SVB investors, hit $0. The bank management and investors were did have to live up to that responsibility.
Should they have to do more? Yes. There should be compensation clawbacks from the C-suite over the last 5 years or something. Lets see where this goes.
Getting a Slack from the CEO on Saturday night saying basically "we *should* be able to pay you this week, I think" is fairly nerve wracking.
The truth is, this is the tip of the iceberg. Don't be sailing on the Titanic since you have been warned.
Comments like this distract from real bailouts and moral hazards.
Then the venture capital industry and startups decided to ignore these risks and put massive amounts in one bank.
Then they were made whole at 100 cents on the dollar, when it probably would have ended up at 85 cents on the dollar on the amount over $250k the other way. This is pretty much the definition of moral hazard: why diversify banking now?
(Of course, I've always thought that the government should have come in with a dividend of 70 cents of deposits really quickly, to allow everyone to keep operating and reduce uncertainty).
My employer (a nonprofit that I care about) banked with SVB; so my personal interests are not aligned with what I believe and what I'm arguing.
The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused. This was a completely predictable outcome of aggressive rate hikes - banks buy a whole lot of t-bonds.
T-Bonds can lose money on paper. If someone buys a 1% 2-year T-Bond for $100 (expecting $102 in two years), and the next year, rates go to 3%, the book value of that bond (what it can be sold on the open market for) is now $99 because of how bond values are determined.
The risk of this exact scenario playing out across the banking sector is likely the reason why the Fed took so long to raise rates (and the drastic, reversal of course when they tried in 2018).
Discounted cash flow analysis / net present value is the one thing that we have in finance that's really a fundamental/intrinsic thing.
No. You don't just get to get the government to subsidize all your duration risk. You need to properly run a bank. You can buy shorter duration bonds in order to mitigate the risk from interest rate changes.
Call me silly but opening a bank account with the 17th largest bank in the US is not risky or reckless behavior in my book. It's nothing like Wall Street in 2008. They're bank accounts ffs. People use them to run businesses to earn their money. They don't become rich off bank deposits. At best SVB might have given some discounts on other products for keeping large balances. If they did, they should also have advised splitting the deposits into $250k accounts or done it automatically.
> why diversify banking now?
Why do it at all? Is any value produced by doing that? If I have $25m in 100 accounts at one bank, it's unconditionally insured. But if I put it all in one account at that same bank, it's not. It's the same amount of money, and the same level of risk as I'm the only owner of all that money. How is that logical?
Public sentiment has colored this situation differently because SVB account holders are largely wealthy individuals and companies.
Bank accounts are a utility. They should just work.
Insurance is by ownership group, not by account.
It eliminates the most proximal cause to the SVB collapse: strongly correlated behavior by large account holders. If banks have many account holders that are diverse, it's hard enough to get a panic that causes illiquidity.
The duration risk would have still been an issue, but a far smaller issue without the need for panicked liquidation. (Even with a healthier balance sheet, most banks would struggle to endure a bank run like SVB).
> Let account holders get on with more useful work.
If you have a massive amount of money, there's a little bit more work to do than dumping it in a random bank.
Ages ago, when my firm had a $15M bank balance, it was close to trivial to work with a vendor to spread the balance among 20 banks. We were still not fully insured, but we had significant insurance and limited exposure to any individual bank failing. 20x the risk of failure, but 1/30th the cost should one happen. We could have also bought some treasuries directly.
> Apply those increased premiums retroactively to all the banks that failed recently, if feasible.
How do you charge a bank that failed and doesn't have the money to pay its depositors money?
I'm in favor of a small increase in the insurance coverage. Maybe $500k or $750k. But I don't think it's good to make bank accounts equivalent in safety to treasuries up to any amount but more liquid.
At least in the most recent cases, they have the assets but not the liquid cash.
> it was close to trivial to work with a vendor to spread the balance among 20 banks
Why can't banks offer a product like this themselves? Or do it automatically when an account balance grows too large? They could partner with other banks to do it.
Yes, but those assets need to be sold for less money to pay current account holders.
Or if you issue a loan based on receiving the value of the assets in a few years, you'll need to account for time value of money, which has the same effect.
> Why can't banks offer a product like this themselves? Or do it automatically when an account balance grows too large? They could partner with other banks to do it.
Many banks do. Comerica set us up with this product, but we had to ask-- because otherwise they'd rather have had all of our money.
(And even though Comerica got equivalent amounts incoming, for various reasons brokered deposits are less desirable to a bank than direct accountholder deposits).
There's less than zero chance any of these downtowns will be covered to residential. Offices and homes have very different needs, you basically can't convert.
Oh come on, we can do far more than can kicking. There is always war, revolution, and decades of economic hardship!
That one is can kicking.
The government? Sure... print more money.
The problem is that if you do this every time, you are effectively entrenching the current power structures of society. This isn't a bad thing if those power structures are good - or necessary. But ... it's obvious that repeatedly doing this benefits a specific class of individuals (capital holders) by capping their downside. Capping the downside of existing capital holders also caps the upside of non-capital holders by creating an uneven playing field and eliminating opportunities available to those with "clean" balance sheets.