Re:SVB shows that there are few libertarians in a financial ...
by yunwal on Monday March 13, 2023 @09:15PM
(#35145968)
> This is not the customers/depositors' fault.
To be clear, it's not the customers' fault, but they also shouldn't expect FDIC insurance to cover any of their deposits beyond $250k. Whatever happens to their personal money is their responsibility
Re:SVB shows that there are few libertarians in a financial ...
by TuringNYC on Tuesday March 14, 2023 @08:01AM
(#35150128)
>> To be clear, it's not the customers' fault, but they also shouldn't expect FDIC insurance to cover any of their deposits beyond $250k. Whatever happens to their personal money is their responsibility
Note that many customers had their excess funds not in bank deposits, but in US treasury bills / short term bonds via a Money Market Sweep Account. Except it turned out the assets of the MM account were not in their name but in SVB's name via a custodial account, and hence is locked up, and would have been locked up in bankruptcy.
Once the losses on their bonds approached the totality of the SVB equity tier, they should have either accepted the loss, or they should have hedged it away (with an interest rate swap, and locked in a loss.) At that point they would have had to declare the loss (not hide behind AFS accounting treatment) -- and taken a massive equity hit. The institution would have lost equity value, but would be a going concern.
However, in the above case, the depositors would not have been at risk. Instead, once their unrealized losses piled up, they rolled the dice hoping things would turn and effectively bet depositor money.
This is not the customers/depositors' fault.
This is not the government's fault.
This is not the Fed's fault.
This is the fault of bank management, specifically risk+accounting+exec teams.