It’s not supposed to be sexy. It’s avoiding moral hazard. Eventually, you have to let poor risk management fail.
TL; DR What we did in March 2023.
First Republic, SVB, Signature—our nation’s second, third and fourth largest bank failures in its history [1]. (WaMu.) Resolved so smoothly we don’t even talk about it less than a year later.
[1] https://en.m.wikipedia.org/wiki/List_of_largest_bank_failure...
Except now with the banks understanding that FDIC will make depositors whole, above and beyond the $250K limits.
The only thing this does is increase banks comfort with risk.
The stockholders care more about the stockholders than they do about the depositors. This is also true for most of the managers, maybe all of them.
Weren't those banks just sold without the government stepping in?
They were put into receivership under the FDIC before being sold in a structured process [1]. In any other country, and at any time prior to ~2012 in our nation’s history, March 2023 would have been a financial crisis.
[1] https://www.fdic.gov/news/press-releases/2023/pr23019.html
FDIC is backstopped by the Fed and participant banks. There is no hard limit anywhere. Make depositors whole, good luck to everyone else. If you’re exceeding FDIC insurance limits as a depositor, you should fix that, today. If you have exposure to at risk asset classes, you’re already exposed, you’re just waiting for prices to catch up to reality.
how do you fix it?
If you're a larger business (>$5M cash equivalents on hand), treasury management in government money market funds instead of a demand deposit account. All roads lead to mostly US treasuries here.
[1] https://www.fdic.gov/resources/deposit-insurance/brochures/i...
[2] https://www.fidelity.com/why-fidelity/safeguarding-your-acco...
(previous comment on the topic during SVB failure: https://news.ycombinator.com/item?id=35171289)
If your risk model is the US government allowing FDIC to fail, we're well outside of reasonable discourse. Your currency would be food, fuel, and firearms.
When the problem is too many loans 'how do you still let people get loans' is not the right question to be asking.
Reserve rates have been 0% since 2020. All Deposit taking institutions with a loan department have carte blanche to print money. The model you're operating under doesn't actually map to how things are now.