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Comment by consp | Hacker News Reader

In the modern world if you are a bank you will be bailed out eventually, thus your problem becoming everyone's problem.

The 2023 mini banking crisis has its own wiki page and it's quite informative. Of the three banks involved, one bank saw its shares drop 97%, another "shareholders lost all invested funds" and the third got auctioned off for pennies on the dollar. No investors were bailed out.

Banks go bankrupt all the time. Community Bank and Trust of West Georgia went bankrupt just 3 days ago. The Metropolitan Capital Bank & Trust that went bankrupt back in January. 99% of the time the investors are completely wiped out. Bailouts almost never happen, which is precisely why it's such big news when it happens.

Ah-hem SVB?

An outlier in historical terms (i.e. the last 20 years)

https://projects.propublica.org/bailout/list

SVB was not bailed out. Depositors were made whole (as they should be), but shareholders were completely wiped out (as they should have been).

My point exactly.

Eh, they were kind of bailed out in that uninsured deposits were made whole. Not saying they shouldn't have done it (fighting contagion is like fighting fire, earlier is prob better and potentially cheaper in the end if your confidence bluff succeeds) but "bail out" is a flexible enough term that electing to cover uninsured deposits at the expense of uninvolved parties feels like it qualifies to me. Plus it has some of the same smells as other bailouts - weighing moral hazard vs systemic risk.

“They” in your sentence is not SVB. Depositors who put money in an accredited bank should not have to worry about bank runs. Risk free banking for depositors is a cornerstone of the US economy.

There’s also no moral hazard here - the shareholders, equity partners, and debt holders were correctly wiped out.

Risk free banking past FDIC limits is not explicitly a cornerstone of the US economy, it is a thing that is sometimes done and sometimes not done depending on contagion risk. If it's so essential then we should make it explicit so that everyone pays the fair share for their deposit insurance.

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