- FDIC guarantees that every deposit at these banks up to an unlimited amount will be paid out by the US government.
- Because of that guarantee, the bank run stops and people leave their money there (and in fact deposit more).
- Because of the influx of cash the bank solves its liquidity issues and the government doesn't actually have to spend a single penny.
In theory all of this works. But the next question is – how far will this go? Will FDIC do the same for every bank in the country? Can they all just start taking more and more risk? Do customers not need to care about how well their bank is run, because ultimately the US government is everyone's bank?
Did we just accidentally invent a fully socialized national banking system?
Not if the profits still go private interests.
The standard way of doing big business in the USA for quite some time has been “socialize the costs, privatize the profits”. So on the face of it this doesn’t seem new.
To avoid legal hot water, the FDIC may find themselves to equally protect every bank which might quickly turn out regrettable…
> Did we just accidentally invent a fully socialized national banking system?
According to Kevin O’Leary, YES. He also makes a point about how the management was "idiotic" because if they had just gone to JP Morgan, or Wells Fargo, or another big bank - and said, "hey, we got a short term cash problem with a lot of treasuries," they almost certainly could have come to a very low-interest loan arrangement that would have prevented this outcome.
I’ve read a similar sentiment elsewhere about their inability to raise the necessary amount without hitting full panic button.
Whether idiotic or not, the CEO sold before this. Maybe there’s a bigger play
(edit: I see the phrasing "fully protected by the FDIC" -- this might be the general idea that depositors won't lose anything, but not literally that FDIC is officially extending insurance, I think?)
Anyway, for the BTFP, I think it is generally available to all banks. Seems to allow borrowing against underwater assets at par value, at roughly 4.6% interest.
https://www.federalreserve.gov/newsevents/pressreleases/file...
While it came together over the weekend[1] there are some guardrails -- including that it only applies to collateral that was already owned at the time of announcement (so far...).
[1] based on zero evidence, I wouldn't be surprised if they have stuff like this war-gamed and sketched out in case
I had seen the first round of announcements around receivership certificates https://www.fdic.gov/news/press-releases/2023/pr23016.html
I'm not sure on the time of that but the Fed press release the evening of the same day has the exception and "all depositors will be made whole" phrasing:
https://www.federalreserve.gov/newsevents/pressreleases/mone...
On second thought - SVB is apparently the safest place on the planet to park enormous amounts of cash. Why would you not deposit everything here? The Government will just save you if SVB screws it up again... right? Absolutely zero risk in parking everything with SVB... what a great signal to be sending the public.
This is a naked attempt to pump the value of SVB assets, and seek a less-than-fire-sale to another institution.
I mean, SVB (and every other bank except those three) wouldn’t exist today if people treated the three banks the government decided to invoke the systemic risk exception for [0] in the last financial crisis that way, so, I’m going to guess the market will also not treat SVB that way.
[0] Two of which didn’t end up needing the exception to actually be used because the mere announcement of the decision facilitated other resolutions.
How long will the FDIC make this unlimited protection available to SVB++? Is it just long enough to calm everyone down, and then in a few weeks/months release a very quite announcement that the guarantee is going back to the original $250k? If it is new gov't policy that all accounts every where are guaranteed for ever, then that's a huge banking shift that seems like something that would require a bit of congressional approval. But that's just me not knowing a damn thing about how the FDIC decisions like this are made
The fact that the FDIC website still says $250k cap is amazingly laughable. It's either unlimited for everyone every time, or it's $250k for everyone every time.
The reality is - it's infinite deposit insurance if you are well connected. Let that sink in folks.
It’s the Silicon Valley BRIDGE Bank. The one that was created by the government after shareholders were wiped out and the execs were fired, and new management was appointed.
Of course, a lot of operations, data, tech will continue. How else would they ensure customers etc are provided access to their funds and are able to carry out their regular banking services.
I think the first step they have to do if there is any hope of a successful relaunch, is a full rebrand.
Why do regulators never split banks up? [0] For people who talk so much about managing risk. Reminiscent of GHW Bush's complaint about eating broccoli.
Also, talking about concern about job losses and wider economic impact, compare to in 2020/1 when Congress was fetishizing daily about stimulus packages to save the airline industry, yet long-distance coach companies Greyhound/Boltbus and Megabus were simply quietly allowed to cease business.
[0]: https://www.americanbanker.com/news/regulators-willing-to-br...
> 1/17/2023 The Office of the Comptroller of the Currency and other regulators would consider breaking up big banks that repeatedly fail to correct bad behavior, according to acting Comptroller Michael Hsu.
> Though financial regulators have long had the power to split up banks for incessant violations, Hsu's remarks at the Brookings Institution on Tuesday were the most explicit warning in recent memory of regulators' willingness to break apart large, chronically delinquent financial institutions.
Second: IIUC, any shortfall in making SVB depositors whole will come from a levy on the rest of the banking system (and maybe small (<$400m) clawbacks from execs' share sales). How much will that levy cost the rest of us? Can it be legally or politically challenged? Are any Congressmen challenging it? (Where are the libertarian Republicans on this?)
The only “moral hazard” being created here is encouraging people to deposit money in smaller banks.
If the govt hadn’t created the “moral hazard” then people and businesses would simply have chosen to do all their banking with the much safer big banks like Chase and Citibank.
The reality is that Americans don’t want all banking to be concentrated in the hands, but smaller banks are significantly more risky and inefficient. Depositing money in the smaller banks and not just the top handful is the “moral hazard” that has been created by government intervention.
The rest have already been paying for this insurance all along. Wouldn't make sense to levy a fee on fire insurance policyholders when someone without fire insurance has their house burn down.
This guy really thinks people are THAT stupid?
* a complete outsider to SVB
* formerly with FDIC
* ran a consumer banking-tech startup until joining SVB
* ran Fannie Mae for six years after the 2008 financial crisis
* high-level experience at BofA and Deutsche Bank
He sounds like about as ideal a person to run the new SVB as imaginable.
[1] https://www.wsj.com/articles/barney-frank-pushed-to-ease-fin...
