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.
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.