No. The feds aren't giving anyone fed money, they're selling SVB's assets and giving the people they owe their own money back. There isn't enough money to give everyone 100% back, so they won't be getting 100% back. There's no extra government money making anyone "whole". They're just winding down the assets so they don't all get stolen like FTX.
That's certainly not what any of the articles quoting her are saying.
Then you should be able to offer up a quote where she says that.
Hint: she never said that.
It makes sense to make depositors whole, they’re innocent here. It doesn’t make sense to make SVB whole for managing their risk poorly.
The bank’s owners have to pay $x for buying FDIC insurance of up to $250k per account per person. If it actually costs $y > $x to insure for more than $250k, then that is quite a windfall for the bank owners at the expense of federal taxpayers.
SVB is dead. Shareholders are getting zero. The losses are not being socialized. But because we don't want a bank run on every regional bank, let's make depositors whole.
Obviously that insurance costs something, and the moral hazard is that both bank owners and depositors of banks with lax standards get to financially benefit from lower costs due to all federal taxpayers subsidizing their risk.
Anytime taxpayers give money, they are tilting the incentives such that the risk of the loss being bailed out is now going to be underpriced, because it will be assumed a bailout is coming.
If the goal is to have no depositor in the US ever lose any money, then the government should just give everyone an account they can transfer money into and out of. It will earn no interest, and no bank owners will profit from the taxpayers’ subsidy.
> make depositors whole
It seems that the big money people affected by this chose this nonsensical, archaic term to use in place of 'bailout' so that people wont react. It really doesnt work and it looks way, way nonsensical.
But in this particular instance taxpayers should want to invest in trust in US banks and dollars until regulation is corrected.
We do. SVB lobbied successfully to exempt itself from the Fed’s stress tests and Basel III, both of which test assets for interest rate risk and would have caught this problem.
Don’t worry world, when push comes to shove, those who had nothing to do with it will bear the responsibility!
I don’t think that’s a better message for anyone.
Any treasurer or CFO with half a brain knows that.
I fail to see how the government doing exactly what the law says and what they've always said they will do makes people lose trust in the US.
it is all the bailouts and insider dealing that kill confidence in the dollar and the banking system. enforcing the rules increases confidence.
Good. That's exactly what should happen. It should happen every single time, repeatedly. People should have to learn the hard way that banks and the government cannot be trusted.
These are the consequences of their irresponsibility. They should not get to avoid those consequences just because "banks and USD are important" or whatever excuse they come up with. If the US really is all about the free market as it claims, it should allow these banks to fail and everyone who trusted those banks to lose. Customers lent their monet to this bank and they lost. Allow them to face the consequences of their actions.
You don't want wealthy people and companies thinking their money isn't 100% safe in a top 20 US bank.
I’m surprised to hear this perspective.
I think most people understand a bailout as cash injection. Not that you get more than what the government insures.
If it were the latter then bailouts happen all the time without bank failures or FDIC takeovers (all transfer > 250k).
This situation isn't a handful of big individuals losing some of their money and the majority being insured under FDIC, the bank's customers is mostly small and medium businesses which have lost all of their money.
I hate bailouts and think we should allow more failure but it would be a horrendously bad idea to let a bunch of businesses fail under no fault of their own.
They'd likely be looking at multiple tens of thousands of unemployed individuals near instantaneously along with accelerated layoffs at unaffected businesses as clients disappear overnight / businesses get spooked.
If SVB is insolvent than customer deposits are not worth their full value. The phrase “making all depositors whole” would be the Feds covering the difference. Anything beyond the $250K per account would be money that they are not entitled to per US banking regulation.
> If it were the latter then bailouts happen all the time without bank failures or FDIC takeovers (all transfer > 250k).
This has nothing to with bank transfers. It’s about deposit insurance.
It's my understanding that FDIC considers $250k the minimum they'll cover and they can (and have) cover(ed) higher through raised premiums to other banks.
This isn’t correct. SVB has assets which are still worth something, even if they are less than their total liabilities. Unsecured depositors are first in line for that money, and the $250k fdic insurance limit has nothing to do with it.
5% seems like the right balance between the two extremes.
Companies and people should pay a small penalty.
At the same time, we shouldn’t rock the financial system further. We need to have confidence in the system.
After this, the government should make new regulations to prevent this scenario from happening again.
For those wishing to just follow existing rules exactly as is, bear in mind that a contagion will likely reach your personal finances.
It’s just a matter of whether you think the ROI is worth it.
No it's not. If they get a single cent above the bank's remaining assets (after administrative costs of the FDIC action), I don't think I will be the only one losing any remaining trust in the system.
I don’t have any money in SVB nor anyone I know.
However, I have a vested interest to lower the risk of a contagion.
I think the ROI to the US economy should make sense for a bailout.
It sucks. And I’m once again paying with my tax dollars. But a deposit bailout, while shaving a few percentage off seems to make sense.
https://www.fdic.gov/news/press-releases/2023/pr23016.html
> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.
Sometimes up to ~75% of the funds is paid out within weeks of collapse, but for some banks it’s only 10 or so percent. Most of the time it seems to end up with over 90% being paid out (sometimes it’s 100%), but the payments can come over ten or more years!
Often seems to be one within weeks, one in the next month or two, and then the payments seem to start coming every three or so years.
The problem now is that startups need the money quicker than 10 years. But to sell everything now means a giant haircut.
Make the depositors whole and let things calm down. Then, at leisure, on a case by case basis, claw back a few percent to cover the moral hazard of people getting better loan terms or whatever.
From the FDIC’s site:
> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits.
For simplicities sake, let’s just assume 100% of the assets are actually there, but it’ll just take varying years for everything to mature. So, what’s next? FDIC finds a buyer for the assets, perhaps a private bank or a a pseudo-government body who has the ability to wait till maturity, and in the meantime, everyone gets all their deposits. That’s not a “bailout”, and is following the rules.
Yes, that's happens in the ideal case. However, due to the rise in interest rates, the market value of SVB's assets is likely lower than $175B at the moment; so it might prove challenging for FDIC to find a buyer for these assets at the required price to give everyone their deposits back. Even well-capitalized entities that have the capital to refund depositors now and the ability to wait till maturity will not pay the face value for these bonds, as they can get a better return by investing that money somewhere else (such as treasuries).
Deposits are less, too. We won’t have a good picture of their balance sheet until later.
They would have borrowed at the Fed’s discount window if it did. That’s the systemic solution to illiquidity. The FDIC is a fix for insolvency.
Each account should be allocated MIN(balance, 250K). Then the remaining should be allocated pro rata. So if one is still owed $1000 (ie the balance was $251K before the collapse), then that account’s share of the remainder is: $1000 / (sum of all remaining balances owed)
The haircut per account is only on amounts beyond $250K.
The second part of that sentence addresses your question.
FDIC limit should be way higher anyway (when was the last time it was raised?) but if we allow depositors to lose money it will quickly cause a stampede to the handful of huge banks and drive smaller regional banks out of business. That’s why other bank stocks are also plummeting right now. Is that what you want?
If an enormous earthquake strikes one region causing billions of dollars of damage but you live on the other side of the country do you complain about the federal government spending your tax dollars to help those people rebuild?
For the record I believe SVB shareholders and debt holders will get wiped out, as they should.
Making a sob story about a 70 year old granny doesn’t change the facts.
And she wouldn’t take a $750K haircut. She’d get $250K guaranteed and her share of the remainder which is not going to be zero. Probably much closer to 80+% of the balance above $250K.
> If an enormous earthquake strikes one region causing billions of dollars of damage but you live on the other side of the country do you complain about the federal government spending your tax dollars to help those people rebuild?
If it’s going to be done with funds not allocated or aligned with FEMA then damn straight I’ll complain. Society does not have infinite money. If they want to increase funding for something then we have a process for that.
The government should get 100% of the immediate cash it provides to cover the $250K per account. Hopefully with interest.
> Isn’t that a small price to pay to avoid a total collapse of the local and regional banking system?
No that’s the type of bankrupt logic (pun intended) that would create an even bigger financial crisis due to incentivizing bad risk taking by banks.
And SVB paying out depositors $.80 on the dollar isn’t going to collapse the banking system.
https://finance.yahoo.com/quote/PACW - Down 60% https://finance.yahoo.com/quote/FRC - Down 30% https://finance.yahoo.com/quote/SBN - Down 40%
Meanwhile huge bank stocks are up or unchanged
https://finance.yahoo.com/quote/JPM https://finance.yahoo.com/quote/WFC
Did these banks all make the same stupid decision as SVB? Unlikely but maybe. More likely though is the risk that people get spooked over SVB customers losing their deposits (even just 20%) and decide to move their money away from smaller banks like SVB to huge banks like Citi, Wells Fargo, etc. Personally if there were a chance I'd lose just 10% of my balance I'd make the switch, it's the only rational thing to do if other depositors are taking a haircut elsewhere. It's not going to collapse the entire banking system, just the local/regional one, which you see is already starting to happen.
I fail to see how burning most of grandma's life savings (and other innocent people who probably never experienced a bank run before) and allowing the collapse of regional banks is somehow better than backstopping depositors now and making much tighter banking regulation for smaller banks going forward to prevent this from happening again. Do we want the nation's banking infrastructure to consist only of 3 or 4 enormous banks or do we want the options that a lot of smaller local banks who are able to cater to the specific needs of their communities provides?
Then they can borrow at the discount window and wait out the storm.
In 2008 it was raised from $100K to $250K. The increase in the FDIC limit has actually outpaced inflation since its establishment in 1934, when it was $2500, which is $56K inflation-adjusted today.
So separate checking and savings are insured for $250K each.
As a regular person, you get $250k for your checking and savings together, and your spouse gets $250k for theirs, and then you get another $250k for jointly owned accounts.
That is simply awful financial management. You can be extremely unlucky and have it happen the day you get your deposit, but that seems like an annoying edge case which is unlikely to happen in the real world.
In my jurisdiction across the ponds, investment funds are the easiest method to manage the account insurance risk. They need to be legally and economically separated from the broker you are managing them through, so if whoever you are brokering with goes bankrupt, you still own them. You can access them with a new broker after a bit of hassle.
If you want low-risk, pick funds investing in government-backed bonds. High-risk choose stock market-based index funds.
Now the only thing counting towards the $250K limit is whatever you have in the brokerage account between transfers. Easy peasy, your risk of a bank collapse is zero.
I think the idea is that millionaire grannies should be advised to split their cash across four accounts, or buy bonds, or some other sensible thing, rather than just keeping bank deposits.
If you start bailing out banks which take risks, then the incidents become less isolated
Once you're handling millions of dollars you absolutely should be looking into counterparty risk when you deposit funds. Baffling that people are arguing business owners should do no due diligence on a bank or take no insurance.
Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut.
> “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank assets to make customers, not owners, whole.
Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds.
> Generic screeching against the tech world. I get the schaudenfreude, but this will not hurt big tech and VCs as much as tens of thousands of small businesses, and the people employed at them. Some billionaires will be upset at some relatively insignificant losses, while hundreds of thousands may lose their jobs.
On the flip side, there's nothing special about many of the customers being small businesses, or startups, or big businesses, or really anything else. There's established rules for FDIC insurance and that's what we should be following.