The actual "letting it fail" would be to pay up looses only for those insured. Those who did not insured would not be paid looses in "let it fail world".

Exactly... they liquidate the bank's assets, payout the FDIC insured, and most of the depositors only lose about 10%... the shareholders would lose more... and the executives and board potentially lose everything to pay shareholders. That's how this is supposed to work under existing rules.

Why didn't the fed decide that course of action in this case?

Seems the difference is small. Shareholders still lost everything, depositors lost nothing instead of 10% but that's a minor difference.

Guess one difference is how long it'll take before depositors can access their money. Now they'll get it immediately. If they were waiting for liquidation of the banks assets, that would probably take longer.

Depositors would have lost up-to $X - 250000, not 10%.

SVB is down ~10% but that doesn't mean everyone would have actually been made whole from the money.

I guess I still don't see a problem. Some business close. Some people find new jobs. Life goes on. I don't see a reason for intervention here.

The difference is that the thought of losing 10% is enough to make everyone else consider withdrawing the money they have with their banks. And that initiates a bank run that would spill over all the banking sector. The bailout is not to protect SVB; that's already gone. Fed is now trying to avoid having people stress testing other banks, because they probably won't handle it.

That's very interesting. Thanks.

The issue with that is that there’s often no adequate compensation for damages done. Individuals can get extraordinary rewards for high risk behaviour and positive tail outcomes but there is a limit how much you can take from them in case of a catastrophic (societal) outcome. Regulation is really the only way manage this asymmetry.

"Regulation" is what created those limits... Of course, the true limit being, the loss of their wordly posessions and assets, and possible jail time for anti-trust action. Lack of regulation defaults to common law, which is as much as possible restoring those harmed by those responsible.