The bank has to cover it, but not today. And it's an agreement and not a surprise when it happens.
No, lets create a complicated mess, fractional reserves, excess liquidity and having money costs money, growth and more growth and ... and .. and. You're all falling for it because you're greedy and don't want to be left behind.
When is anyone going to realize the actual problem? How many times does it have to happen? I'll see you guys again in 10-15 years as we have the exact same discussion.
Would the execs get million dollar bonuses and fly jets? No, and I'm fine with that, I don't have to count on a financial crash once every decade or two.
What do you think would happen?
What? Insurance companies (in general) are some of the most capitalistic. They teams of actuaries calculating risk to leverage a large capital pool to generate more capital.
In the US you have low taxes but have to insure against everything. In the EU we have high taxes but insurance is not a thing unless mandatory (car/home). I don't even have the latter, stupid yes, but I would suck it up and not blame it on the FED.
It is possible to have a bank that just stores the money without touching it, but this bank would charge us for the costs of doing so, and it won’t be free, and it won’t be popular vs free options (which once every 10-20 years blow up).
Meanwhile they're closing offices to save money, and making billions every year. They can make it work, we just have to demand it.
Such insurance exists on the private market already and is commonly used by businesses who have large sums of cash on deposits. Presumably, the depositors at SVB didn't do that because they didn't want to pay for it.
Wouldn't a libertarian prefer that over having the government do it?
I wish the US Govt had done closer to what Iceland and a handful of others did in 2008... No, we aren't bailing you out, you pay out domestic deposits first, and then if there's anything left, the rest. And no, you don't get to take/keep bonuses for it.
Modern corporate structure and liability shields to the level they exist in the US is anything but libertarian. You make bad choices, you live with the consequences.
In the narrow statement that I replied to, a proposal was made to have the federal government enact a kind of insurance that has long been available in the private sector. My understanding of libertarian perspectives (based purely on hearing what libertarians say) is that doing it in the private sector would be preferable.
Particularly considering that the problem for the depositors was that they weren't availing themselves of private-sector solutions, not that those solutions failed.
I may be complete wrong on this, though, as I am not a libertarian.
Perhaps I misunderstand the different strands of libertarianism, but what kind of libertarian prefers mandatory government insurance over voluntary private insurance?
I understand "libertarian in theory" ... I am waiting however for a libertarian from Silicon Valley to say that we should have let all these Silicon Valley entities fail for being stupid with their finances in this very real-world scenario. Help me understand a more moderate libertarian position.
We tried more libertarianism in the 2018 legislation that removed some of the need for hedging for SVB and look where it got us. How does it help us from here?
I don't mind a little libertarianism... But it seems to me if the savvy Silicon Valley folks can't manage their payroll risk with all their smarts, what about payroll for a bank in Kansas? I am not a fan of government intervention particularly and the moral hazard of guaranteeing all depositors disturbs me. But despite that, I also don't really consider SVB a one-off... the fact that SVB is just one of many (hopefully smaller) banks with this whole "class" of risk. So while I would have preferred more guardrails around how much depositors were covered, I also can't bring myself to completely condemn FDIC risking moral hazard to ensure stability to try to avoid psychological contagion spreading to a LOT more banks.
The problem is that libertarianism and preventing bank runs just seems to me like problems with "unrestricted short selling" or "calling fire in a crowded theater"... if you don't impose checks on it, the incentives for malicious behavior are so great (and the costs to being malicious so small) as to be counter-productive. Why not go all the way to anarchy? Do you really think market forces will magically govern against abuse and malicious claims without the force of the state? It would seem to devolve to mafia land where powerful factions just agree not to mess with each other and you have to have "pull" to get protection... which is exactly the critique Ayn Rand had of socialistic governments.
I was curious to hear what people say and despite my post getting downvoted to -2 points (it wasn't worded particularly well to avoid misinterpretation) I do appreciate all the replies.
1) have Congress+FDIC...
This made me chuckle. I thought Libertarians want gov _out_ of their lives. :)
https://en.wikipedia.org/wiki/No_true_Scotsman#:~:text=The%2...
1) have Congress+FDIC create a new form of deposit insurance that goes up to 10-25 million dollars[1] that is to be used for a new form of account legally dedicated to payroll; funded by a new set of fees since the private market clearly is not handling this issue well (Everybody knows about FDIC limits, and people who spend more than a fraction of time thinking about the risks can easily find out about third-party insurance and (newer) banking services that bundle your capital to multiple banks. )
2) impose interest rate stress tests against banks with much smaller amounts of capital (not the current $250 billion threshold which must mean only the top 10 banks are subject to it?) (Something that SVB lobbied to keep itself exempt from having to do, and avoided the expense of keeping its interest rate hedges up to date the last ~18 months, leading to their collapse.)
If you don't like one of those, then why not address a bit more of the root cause why businesses only do business with one bank:
3) require banks legally to not impose exclusive deposit conditions or benefits as a condition of granting loans (ie banks pressuring in any way their lendees to use their deposit services)
The recently revealed sort of moral-hazard/grey-area "backstop-all-deposits-but-only-for-critical-situations" is really anti-competitive if we don't address it. It ensures that startup/SMB business owners, unclear of whether their >250/500k deposits are fully protected or not, will want to move cash to the very biggest "too-big-to-fail" banks just so they don't have to financially architect around the cash flow risks. (Cash flow risks are the #1 cause of failure of small businesses.)
I would much rather have 1000+ banks in our ecosystem than 10; surely that is a more robust system.
To me, guaranteeing all deposits (not just 250/500k or even 10 million) is another form of moral hazard where banks "privatize the gains, socialize the losses"; But I think the payroll risk is a systemic societal risk that makes sense for us to develop a societal framework to protect.
[1] 250 employees at 250k each is a monthly payroll of $5 million. 6 months payroll is 30 million. If you're bigger than that, you have enough time/resources to put your eggs in more baskets and manage the complexity. I think I am being very generous here.