> (indirectly bank customers)

That's not a given since it may just reduce profits. Banking is a very competitive environment.

>That's not a given since it may just reduce profits. Banking is a very competitive environment.

So the options are:

1. Banks eat the cost.

2. Banks take on more risk to cover the cost (putting the whole system at more risk).

3. Banks increase customer fees, interest rates, etc...

I don't have a crystal ball but I have a strong guess about which of these options are most likely to be implemented.

Not only will tax payers likely pay for this but the most likely tax payers to pay are the ones with the least flexibility (stuck with variable rate debt, limited banking choices, no dedicated money managers working on their behalf) aka the poorest tax payers.

If my assessment is correct, they have somehow found and settled on a solution more disgusting than a generally distributed tax payer bailout.

4) Banks get their privileges revoked and they are no longer an oligopoly with privileges of being the only way to store dollars legally, and the only investment institutions who get to gamble their customers money while the government is insuring their loses but does nothing about their gains.

The Fed releases a digital dollar that you can bank without needing to be a part of this oligopoly. Banks are forced to give better terms to be attractive again, terms that will make up for the risk of the bank using your money. Deposits are no longer guaranteed because being in a bank is now a deliberate choice instead of something you're forced to do despite having money.

Banking is not competitive in any way. The small players are very risky to bank at. The big players get to be riskier because they are protected by the government.

The last time a special assessment was required, the cost was 5 basis points of deposits.

Would you notice a 0.05% increase in fees?

Not sure why you’re being downvoted, that analysis is correct.

"It's not all tax payers, just all tax payers with bank accounts", which is basically all tax payers.

Sounds like word games played by people in charge to have tax payer bailouts using two layers of obfuscation.

And also "people with bank accounts who don't make enough to pay taxes" like my grandma.

Normal/poor people don't put enough money into banks for it to represent much of their earnings. IIRC, from that image that was circulating around, much less than half of the deposits of even BofA are from accounts <$250k. So I don't think accounts like your grandma's are going to bear any percentage of the brunt of this.

> Normal/poor people don't put enough money into banks for it to represent much of their earnings.

This is hurtful in more ways than one. Banks routinely charge all kinds of fees from account maintenance to whatever Wells Fargo did for years.

Retail banks won't let the Federal Reserve open a bank account for everyone by default with the Fed.

Either what you say is true and the retail customers are insignificant, and banks must offer no fee accounts. If not, they can't block federal reserve from creating default USD accounts for everyone.

Or they are an important part of the bank's marketing strategy or whatever. In this case, banks must lose the ability to gamble customer funds.

Which one is it?

> Retail banks won't let the Federal Reserve open a bank account for everyone by default with the Fed.

Actually the FED is opposed to this themselves. A company called the narrow bank was going to try this. The FED refused them a banking license, all the way to court.

The FED wants deposits reinvested into the economy.

Quoting from: https://www.econlib.org/why-does-the-fed-oppose-narrow-banki...

> A narrow bank takes deposits and invests the money in interest-bearing reserves deposited at the Fed. Because that’s all these banks would do, they would be very low cost and hence could pass along to depositors the interest earned on reserves, minus a small fee.

> Narrow banks could attract many large depositors, who currently receive much lower interest rates on their deposits at ordinary commercial banks.

It feels like they were offloading their cost to a service that the government maybe offers at a loss.

It's not so much about the loss, its about the fact that banks lose their depositors. It is great for an economy that the 'savings' of people are used to safely invest in good ideas. This is the function of banks, and incidentally a function that really benefits from a profit motive.

Hence I believe the Fed was against this to keep the economy running by 'keeping money rolling'.

I am not convinced by this argument* because banks can already do that. I don't think that bank are "required" to invest client's deposits, so they can already just stash paper cash in a big vault. It is clearly a dumb strategy for a retail bank.

This proposal for narrow banking seems to employ the government as this vault, sort of like treasury bonds that can be freely withdrawn, which seems a more significant difference.

* I am not denying that this is what the feds claimed and/or believed

Weird… why are so many account holders at BoA depositing more than the FDIC insured amount for an account?

It’s deposit volume rather than number of accounts that are over $250k. I’m sure that most of the accounts are <$250k, but a single $1m account accounts weighs the same as 100 $10k accounts.

But why is anyone holding $1M in an account insured up to $250K?

Many companies pay out their workers more than $250k per pay period.

If you have 100+ employees for payroll.

Yeah, the fees and lower interest rates from this will be pretty brutal for the poor. Not using tax dollars is actually pretty regressive.

Most people get so little interest from their accounts that it is basically immaterial

They only need to cover 20 billion or so for SVB? In the grand scheme of all banks, that's not a ton. SVB wasn't some FTX oops it's all gone level fraud.

Assuming it's a one time charge and not a contagion, it sounds like why we have government and FDIC.

$20 Billion is roughly $60 for every person in the country

It's more the state government budget for about 1/3 of the states in the union

128 billion in the FDIC reserves as of December 2022. Better than letting more dominoes fall if you're trying to preserve that insurance pool.

> Yeah, the fees and lower interest rates from this will be pretty brutal for the poor.

I'm fairly sure the poor aren't that affected by interest rates - the very definition of being poor is not owning much in the way of assets that could earn interest...

It's not only the earned interest on savings being discussed here, the OP was also including variable high interest rate loans that most poorer borrowers qualify for.

5 basis points was the last special assessment in 2009. Would you seriously notice a 0.05% lower rate of return on your account?

An assessment on banks costs shareholders of the bank, not accountholders. (Maybe it indirectly costs accountholders if banks lower interest rates on customer deposits, but these rates are generally not affected by a small short term shock).

It might seem unfair that shareholders of random other banks have to pay for this but no more unfair than accountholders of SVB paying for it.

More of the population lacks banking services than you think. According to a pre-pandemic report, IIRC, very large number have <$600 savings.

Being unbanked is on a whole other level : no cheques, no debit cards, savings vulnerable to theft...

They’re spinning it because no politician or appointee wants to be on record as bailing out Silicon Valley, venture capitalists and Crypto.

But the end result is the same: a tax on everyone to bail out Peter Thiel and friends.

> Does this mean all American banks (indirectly bank customers) will pay to cover depositor losses that exceed insurance funds?

That assumes banks balance this liability by reducing payments to customers rather than reducing profits. That's a common and completely misleading claim by businesses - if they are taxed or fined, they pass it on to their customers (obviously, it's an attempt to create political support for the business).

The reality is that the ability to raise prices (or lower interest rates on deposits) depends on the elasticity. If you raise prices on your bottle of water at the supermarket, then people will just buy the bottle next to it - the water-maker will be paying and fee or tax increases out of their profits. If you have the only bottle of water in the desert, you can charge whatever you want. I would think that regular savings deposits, at least, are easily moved to another bank.

Another consideration is that if they could squeeze more out of customers, they'd probably already be doing it. By that theory, at least, they've already optimized or that and can't charge more.

> If you raise prices on your bottle of water at the supermarket, then people will just buy the bottle next to it - the water-maker will be paying and fee or tax increases out of their profits. If you have the only bottle of water in the desert, you can charge whatever you want. I would think that regular savings deposits, at least, are easily moved to another bank.

However, this fee is levied on all member banks of FDIC, which is basically every bank. Thus, it creates the most natural ground for collusion, i.e. everyone implicitly agrees to pass on the fees to the customers.

More than that, a bank account is probably one of the stickiest "purchases" an average individual makes in their lives, unlike a single-use water bottle. How many people do you think has the time and energy to switch to a new bank every time there is a fee increase? Is it the individual's fault for not doing so?

The fee is not the same for all banks. FDIC assessments are based on risk. Riskier banks pay more, safer banks pay less.

Would you notice a 5 basis point change in your savings account?

> Would you notice a 5 basis point change in your savings account?

How many grains of sand do you need to stack before it becomes a pile?

You're not supposed to talk about that! "If something we don't like happens we'll have to raise prices!" seems to be taken at face value all the time. It's true that in an idealised perfectly competitive market a measure which increases the costs of all producers equally will raise prices across the board, but this is absolutely not realistic.

As you say, the what really matters is (perceived) elasticity. If a company thought they could increase profit by increasing prices then they'd just do it. Conversely if they get fined or regulated or whatever but, as expected, it doesn't affect their elasticity curve then they'll leave prices where they are. If they were acting rationally it was already at the ideal point.

What is the difference from when one year ago gas prices spiked by a likely criminal amount?

To me it felt like the market collectively decided "this is a good time to squeeze our costumer and have them blame somebody else"