It does not make sense to let bank shareholders profit from having an implicit guarantee of federal taxpayer funded bailouts.

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.

There's no moral hazard if we pay out depositors and let the bank fail. The big "problem" in 2008 was that the bailed out banks were made whole with equity injections and then continued to grow. (Although the government did quite well on those investments).

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.

Why even bother with the fiction and payroll of the FDIC and a $250k limit and FDIC insurance premiums if there is always an implicit taxpayer bailout?

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.

The FDIC does this as a matter of course with LSAs though.

What is an LSA? Legal service agreement? I am not sure how it applies.

Loss-sharing (or "shared loss") agreement.

The moral hazard is that if depositors know they'll always be made whole then they'll keep their deposits in riskier institutions and therefore executives who are taking on undue risk will win at the expense of the insurance provider. (I think this is probably what lotsofpulp was saying in a different way.)

The general public doesnt care about the shareholders. For the public, a bailout is a bailout. By lending money to that bank, depositors took a risk and participated in the bank's business. It was NOT a state bank. It did not pay any taxes, fees, or anything else to the public's treasury more than the $250k per account insurance. If it did, you would be right - everything could have been rescued to the order of that insurance. But there is no such insurance over $250k.

> 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.

I’m with you that we shouldn’t make a habit of spending taxpayer dollars to make depositors whole. We should have better regulation so this couldn’t have happened in the first place. Banks should be required to manage their risk better.

But in this particular instance taxpayers should want to invest in trust in US banks and dollars until regulation is corrected.

This particular instance happens all the time.

top 20 banks do not fail all the time

What is the significance of top 20? And SVB was far closer to the 50th bank than a top 10 bank.

> We should have better regulation so this couldn’t have happened in the first place

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.

Maybe we should have a public banking option if the government's going to give everyone their money anyway

I'm pretty sure monied interests would lobby hard against that and whip out the "c" word.

Yeah I think the capitalist version of that is more regulation to the point where large banks aren’t able to take on so much risk to depositors.

And if it does. And sets new standards it leads to massive moral hazard and potential of even bigger and even worse failures in future. Why not run a ponzi scheme as bank if in the end tax payers or fed ends up making everyone whole. After you have spend years making money from fraud. With your depositors happily participating in as they have zero risk.

Yes, surely using the government to let private businesses run roughshod on the uninvolved public will prove that we are sufficiently exploitative to guarantee your money’s safety.

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.

No, they’ll have high trust that amounts up to $250K are covered. Because that’s what’s covered.

Any treasurer or CFO with half a brain knows that.

> If the government doesn’t make depositors whole then people and companies all over the world lose trust in US banks and eventually US dollars. This is a federal problem.

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.

Well it’s not even about innocence. They have the strongest legal claim.

no. absolutely not. these are smart greedy people playing the game for their own benefit. they knew the rules. if they lose they eat the losses just like anyone else.

it is all the bailouts and insider dealing that kill confidence in the dollar and the banking system. enforcing the rules increases confidence.

They’re not “innocent” having chosen to put more than the insured amount in “Silicon Valley Bank.”

> If the government doesn’t make depositors whole then people and companies all over the world lose trust in US banks and eventually US dollars.

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.

Why would doing the exact same thing as many, many previous times - here's a list https://www.fdic.gov/resources/resolutions/bank-failures/fai... - suddenly make people and companies all over the world lose trust in US banks and eventually US dollar, if that didn't happen in all the many previous times when depositors weren't made whole (beyond the limits insured by FDIC) after a bank failed?

This time is different in so many ways. Top 20 bank. 2nd biggest bank failure in US history. $200B+ assets.

You don't want wealthy people and companies thinking their money isn't 100% safe in a top 20 US bank.