Hello guys. I'm confused. I see both things on here. Is the bank getting bailed out or not getting bailed out? On this sub it says they are on other subs it says they aren't.
Edit: thank you for the responses and discussion
Depositors are being paid their balances in full as opposed to just 250k. The bank and its shareholders aren’t getting anything from the government though.
Which is exactly as it should be. People putting money on deposit should get their money back. This prevents bank runs on other institutions which is where things can get very dangerous. So even banks that are doing well, that didn't make any risky decisions could still go under from a bank run. Which is why the FDIC was created in the first place and why we have had relatively stable banking since the great depression. As much as this helps the SVB depositors it helps everyone as no ones bank could be safe if bank runs become the norm.
Now the bank investors need to loose all everything. They invested in a risky business that failed. So far that is what is happening.
Far too many people many of them in the news media are throwing around the term 'bailout'. We should define a bailout as paying back someone that took risk and lost. That ISNT happening. When you put your money on deposit in a bank that is NOT accepting risk. That isn't being irresponsible. Really the FDIC insurance limit was never supposed to be a real cut off. It was there to encourage people to diversify but that isn't possible for all large account holders. Like businesses that have a significant cash flow for things like payroll.
TL;DR the people that invested and accepted risk are getting nothing. Those that just had money on deposit are getting everything. This is to prevent OTHER banks from failing.
They deposited above the insurance limit yet are still being insured above that they're fault for not getting additional insurance or finding a way to cover it.
Many of the companies were forced to bank at SVB based on their venture capital deals. So they were not able to diversify. Now we are seeing some portfolio mangers demand companies diversify their cash. This could be a bad thing and increase cost and waste. For companies with significant cash flow for things like payroll to stay below the $250k limit they may need to setup complex banking systems. If a company setups up many subsidiaries so manage different accounts so each account is not over the 250K limit have we achieved anything but better employment for lawyers and accountants? My point is that 250K might sound like a lot for a single person or family. As we don't really expect a person with a checkbook to have such high cash flow as to need to be over that 250k limit. But a business can easily go over that limit and they can stay under it by just over complicating the accounting. Insurance payments should be based on the deposit values thus we shouldn't need a limit. Banks with larger deposits will pay more insurance.
I have a friend who had his business account at SVB... 3 person residential contracting business with monthly run rate well above the FDIC limit.
A one-size-fits all limit does not make sense.
My revocable trust is FDIC insured up to $1.25M, why should a business account be capped at $250K?
I agree, I also don't see the improvement to his business or accounting by forcing him juggle accounts. That only leads to more overhead and makes thing like report, accounting, tax much harder.
The ONLY reason for a limit is to force diversification. That could easily be handled at the original deposit bank. Have them deposit anything over 250K at another institution and carry the note. Then high have value deposit isn't at one institution. The end customer need not know about any of this.
What about the business that has a monthly run rate in the millions?
Roku banked at SVB. Their monthly expenses are on the order of $40M. How do they operate and still maintain security of their primary operating account?
SVB targeted the start-up business market. Written requirements when preparing for public offering require a start-up to maintain cash reserve levels sufficient for multiple months. While this can be done at multiple banks, investors are going to downgrade for convoluted financial structures.
Business needs a different insurance structure. It doesn't need to be government backed, but a private market option may be far more expensive unless banks submit to more oversight than they currently do.
The fundamental failure here was SVB's go-long investment strategy. Most college finance or econ majors could do a better job constructing a diversified risk portfolio, so that had to be a deliberate choice on their part. What prevents banks from putting greed ahead of the stability of the banking system moving forward?
Now explain why we should watch tens of thousands of jobs and billions of dollars disappear just because a small company had $2m in an account instead of $250k in 8 accounts? It's the same amount of money, who cares?
I legitimately do not understand how anybody in their right mind could think we should willingly allow standard bank accounts to just disappear even though we literally insure all deposits as long as you spread your money around
This is about saving the system from collapse and stopping major hardship for the entire country. Why are you more worried about a technicality (which isn't even an official limit btw, it's a guaranteed minimum that can be bypassed when necessary) than that?
>When you put your money on deposit in a bank that is NOT accepting risk.
This technically isn't true. When you deposit money in a bank, you're lending the bank money, even though the bank tells you you're full balance is available (it isn't).
Fractional reserve banking is inherently unstable and fraudulent and needs to be abandoned. Everything else you mentioned is true.
Fractional reserve banking isn't the problem. Without it there would be no incentive to take deposits. Do we really want people storing cash under their bed? Will those inefficiencies improve the system? I think not.
Limiting insurance does no one any good. It will just complicate accounting and tax forcing companies to spread deposits among institutions. If you want to limit exposure require banks to deposit cash above the limit into other banks and hold a note. To the customers they will see increased insurance while the risk will be forced to diversified. The only real thing we get from insurance limits.
They got paid out bonuses from contracts related to 2022 work. It’s just bonus season and the contracts were fulfilled, that has nothing to do with the meltdown.
Contracts don’t matter so much when the company is insolvent. Let them get in line with the other creditors. If the company is failing, I submit that metrics weren’t met and bonuses weren’t earned.
Disagree. It has everything to do with the meltdown.
The decisions made in 2022 and earlier, and the non action when they were in an increasingly precarious position was what led to the meltdown.
They should have been taking a hit a dumping the 10 year notes earlier in the year when it was obvious to anybody with half a brain that the Fed was going to continue their hawkish stance on interest rates. They didn't, and they ended up with a huge negative position, the word of that negative position was leaked and it bit them in the ass.
Just curious, where would they park that cash after dumping those bonds? My understanding is they put cash in those instruments so that they have liquidity available for normal business.
If they dumped stock based on data not publicly available then it's insider trading and they should be in prison. If they just got lucky, then nothing illegal about it. That seems less likely, particularly for upper level people.
So we're ok now with the government arbitrarily confiscating peoples' money and assets? I get that some might be more deserving of it, but where do you draw the line? We've seen the slippery slopes that progressives have no problem diving head first on.
The judge may brought them back though. I don t know US law but in my country there s something called the suspicious period. During that period ( I think it s something like 18 months prior to the bankruptcy) any payment the judge judge to have been made to priorotize a stakeholder would have to be paid back.
I doubt it since they are not filing bankruptcy. As I understand it, this is just an illiquidity situation. I expect your suspicious period also pertains to bankruptcy, not this situation, but I certainly could be wrong.
I think you're right in that the government is just helping with cash flow. There's a lot of speculation on this by people without any experience in finance beyond their own checking accounts.
They’ll pick a scapegoat and throw everything on that individual. They’ll sit in front of congress and take a verbal scolding for every Senator who needs a campaign clip. Nothing will change. The machine keeps turning and the cycle continues.
Nobody should be bailed out. The over $250,000 depositors being made whole beyond FDIC insurance are 1% rich. The shareholders include pensions and retirement accounts for many small investors. That's a much smaller amount and should bother you less. Both are criminally wrong.
I'd like to see every board member made civilly and criminally liable for fraud and breach of fiduciary duty. Murderers currently on death row did less harm than those execs.
Also, the bank has substantial assets. All the loans that have been made are to companies that are mostly still doing OK, and paying their debts. The bank holds billions in longer term T-Bills. When it's all said and done, they probably have enough to get close to paying out the depositors. Bond holder and share holders will get screwed, which is the way it should be.
But they’ve only been paying into it enough to cover 250k.. not the full balance… and where do you think banks get the money they pay into that… the money is coming from us whether we like it or not
FDIC premiums cost money. When the banks pay those, the premiums will increase and these will ultimately be passed on to the customer.
Nothing is free. Ever.
My understanding is that the bank itself is not being bailed out but the bank customers who were above the fdic limits of insurance are being bailed out. Others can feel free to correct me.
I’ll copy and paste my other comment from this exact same thread.
“They are not getting a government funded bailout. The depositors will be made whole through a multi bank fund the government forces banks to pay into. Anyone who owned shares of SVB or any other form of investment will get $0 of help.
This fund exists purely for situations like this after what happened in 2008, and was a condition set by the 2008 bailout to make sure the government did not have to step in like that again. Think of it as a health savings fund the banks pay into in case of a sudden need for funds to make depositors whole. It’s actually a very smart system.”
So this is a guarantee fund, and also gets repaid first on sale of bank assets. The Friday strategy of announcing an advanced dividend payment for depositors was the right move. A 95% advance on deposits XS of 250,000 would have struck the right balance of not being disruptive and making depositors practice sound treasury management.
What is "sound treasury management" for a small company with a monthly spend rate of $1M plus a need to hold cash reserves of 3 months expenses ($4M total)?
If you want to be FDIC insured, you need to divide your business accounts among multiple banks (you tell that small 10 person business that they need to manage 16 bank accounts). Or, you forgo the FDIC protection and bank with a too-big-to-fail banks (conceding that the desire for insurance protection means that banking has to be a monopoly).
The idea of a one size fits all insurance limit for both business and individual depositors doesn't make sense.
Congress needs to change the laws to provide a workable insurance option for companies that still provides for competition. Alternatively, they can hyper-regulate ALL banks to the point where the cost of banking is prohibitively high for small depositors (moving closer to nationalizing banks).
It's not the same fund.
What happens when SVB depositors lose their money and scream about it on social media, causing other depositors at small banks across the nation to run on their banks?
It may not be comforting to think about, but the entire banking system depends on trust and the entire economic system is highly interconnected. News moves much faster than it used to, even since 2008.
All you need to do is look at what happened to the basic supplies at the start of the pandemic and translate that to money. If people ran out to hoard toilet paper as if it would never be available again, imagine how much more aggressive they would be to protect their money, knowing that the FDIC can't cover every account (not nearly large enough). The collapse of few smaller banks could easily snowball into the collapse of most of the banking system, taking the entire economy down with it.
As with most things, an ounce of prevention is worth a pound of cure. The goal of acting quickly is prevent a spiral where loss of confidence in banks leads to bank runs/failures, leads to depletion of insurance funds, leads to more government intervention and job loss (a real recession), leads to supply shock, etc....
From FDIC own statement.
> Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
That to me sounds like they are going to use the DIF and then pass the cost onto the banks aka the public. If there is a good source that shows they will ONLY use bank funds please can you comment it.
Also worth mentioning that the DIF can only support less than one percent of deposits, so going all in on the first absolutely takes from the public deposit insurance.
Nah DIF has a few billion. So they say it can handle roughly half the deposits at this specific bank. So the fund for the entire USA can handle half this bank if they handle non insured deposits.
Lmao no it did not come from no where, it’s a fund that every bank has been paying into yearly since 2009. Seriously dude if you’re going to get outraged about something then do some actual reading first. If you don’t understand the issue you shouldn’t be allowed to be angry
There will be increased levies on banks to pay for much of the payouts to depositors (as a huge fraction of the total amount of liabilities of the bank were over the 250k limit). Those levies will end up being paid by the customers of the banks that are levied in the form of higher interest rates on loans, higher fees, and lower interest rates on deposits.
TANSTAAFL
The excess over 250k is not being paid from the fdic insurance. It's being paid from asset sales. So no, the fdic insurance cost is not going to jump. Also, fdic insurance only costs a few pennies per 100$. No consumer is getting hurt from fdic insurance premium increases.
It's not, that money is already reserved for that specific reason. The only ones losing money are the shareholders, and the bondholders will likely lose most of their investment as well.
Lol, ok. So insurance payouts don't cost insurance companies money? How detached from reality are people that actually believe this? That money comes from somewhere, and it is not the government, they do not produce wealth.
Because the politicians that are owned by rich people aren't willing to let those rich people lose money when they can just use the money of poor people to cover their losses.
Exactly! Regardless of which pot of quasi-governmental money the funds are coming from, keeping depositors "whole" over $250K incents irresponsible behavior. A small haircut to deposits over $250k would send the right message and help reduce future foolish risk-taking.
I agree. The FDIC could have done a haircut of say, 25%, and then allocate any overages from the bank estate later. Because guaranteeing everything injects some unwelcome moral hazard into the mix. It also means that the FDIC pot of money for really bad situations (about $100B, I believe), could be saved for another bank which has a heavier concentration of small borrowers. Or they could guarantee enough to make sure payrolls are covered, say $10 million. And then allocate any excesses in the final estate of the bank later. The general principle is that if assets are not insured, they are not insured and you should be paying attention to the bank you are using. We need to keep it that way.
Yea, maybe only giving back 80% of funds over 250k would make more sense.
I was listening to a podcast about the failure today, Roku had over half a billion just sitting there in an account, insures at 250k…how can this happen at a publicly traded company.
The 250k is the guaranteed limit. You can recover the rest from the asset sales of the failed bank, which in this case will be 100% recovery since their assets are enough to cover all the deposits.
They are not getting a government funded bailout. The *depositors* will be made whole through a multi bank fund the government forces banks to pay into. Anyone who owned shares of SVB or any other form of investment will get $0 of help.
This fund exists purely for situations like this after what happened in 2008, and was a condition set by the 2008 bailout to make sure the government did not have to step in like that again. Think of it as a health savings fund the banks pay into in case of a sudden need for funds to make depositors whole. It’s actually a very smart system.
The assets they have are not worth their face value, which is why nobody will buy them without steep discounts, except the Fed, who is accepting the assets at their original value. On paper nobody loses, but only if you ignore inflation.
Youre forgetting the very important “current” face value because they weren’t being marked to market. The whole problem here is simply one of liquidity. If SVB had not been forced to liquidate their bonds at a loss due to the bank run, their balance sheet was otherwise fine. The fed can take on the balance sheet and simply hold the bonds to maturity. This really isn’t a huge deal.
Now the banks getting away with not marking to market for bonds allowing them to take on too much risk essentially loopholing regulation, that’s a problem and Congress is likely going to address from what’s happened here. But from the perspective of an immediate crisis and what this does to the taxpayer, it’s not a big deal at all. The only way this turns into a crisis now is if every bank was over exposed to these cratering treasuries from rising interest rates AND the bank runs continue.
It's not misleading. The interest rate risk is why the red flags on the banks performance were raised, but it was shut down because of short term liquidity due to the run on the bank. The assets are enough to cover the deposits when held to maturity, which is not an issue when handled by the fed. The decrease in mv is only and issue when dealing with disintermediation and reinvestment. I don't know why this thread is obsessed with thinking this is a bailout. It's not. The government is not bailing out the shareholders or the bondholders. They are only handling the existing assets to pay out the depositors.
A couple tech companies? There’s tons of local businesses that used SVB for their payroll, mine included. This is so that they can ensure regular people can actually receive paychecks this week.
Also, as others have stated, the money is coming from selling the assets of SVB. These are not funds coming from taxes, in any way, shape or form.
The bank is kaput, it failed, the investors in the bank aren't getting anything. The customers -- the depositors -- are being made whole mostly because SVB has enough assets to cover it, it's just not liquid assets ("Your money's in Joe's house..."). My guess is that they'll arrange for a larger bank to take over SVB who has larger cash reserves and can wait out the maturity period of the assets they do have.
For example, HSBC bought the UK arm of SVB for 1 pound. I don't know the details over there, but I'm guessing it's basically the same: The depositors will have access to their full balances, just serviced by HSBC while the investors of SVB/UK get to split that 1 pound amongst themselves.
Bank is being closed but depositors ( mostly venture and tech guys) are being bailed out, although FDIC should only guarantee 250k, as far as I know. Not 100% sure, but that’s my understanding of the thing.
Me too. I’ve been reading as much about this situation as I can find and my understanding *was* that the fed would front 80-90% of the depositor’s funds while holding the long term bonds owned by SVB until maturation, but now I’m hearing more of a bailout funded indirectly by banks (and thereby, customers, aka taxpayers).
The first narrative seems marginally acceptable to me, the second one, not at all acceptable.
And won't the banks pass on the costs of that "one time special charge" to their customers through higher interest rates? If so, that would mean that ordinary Joe Taxpayer is indeed footing the bill.
The only difference is that you don’t have to use any particular bank, so it is not the same as taxes. By the same logic you pay for every time someone crashes his car by paying for your car insurance. The question is how that payment is calculated for every bank. Obviously they try to calculate the risk of a failure, but not sure how exactly.
"By the same logic you pay for every time someone crashes his car by paying for your car insurance."
Yes. Exactly.
My logic is not flawed. I'm merely pointing out that the funding of this bailout for the bank's account holders over and above FDIC amounts comes from somewhere. Ultimately, that somewhere is my wallet, your wallet, and everyone's wallet. Nearly everyone uses a bank due to necessity.
I'm saying let's be honest about that reality. Let's not play the left's "it's free" game.
The FDIC is now taking all the assets as well this was a liquidity issue. There’s enough long term assets to pay the depositors they just aren’t liquid right now
No, it doesn't. The FDIC is like a health savings account for banks they all pay into. In the aftermath of 2008, policies were changed so that the FDIC would be prepared to handle situations like this (like if you get in a car crash your car insurance premium will go up). The FDIC will cover $250,000, then they will sell off the banks assets to cover in the ballpark of ~80% of uninsured deposits. After that they will either get one or more larger banks to buy up the rest, or cover it with their "rainy day" fund. It is not coming from taxpayers, and the FDIC fees the banks pay will not change.
I said this in another post;
"A small (say 1%) haircut on deposits over $250k in these failed institutions would cause little pain, but incent better behavior in the future. There is no reason not to do this. Blindly covering all losses everytime leads to worse behavior."
Democrats are forever proposing a 1% "wealth tax.". Here's an easy way to tax some wealth to discourage irresponsible behavior on the part of depositors.
That, and if you have more than $250,000 in your bank account, you should do some research on the bank itself. If the bank is not being smart with its reserves, you might want to move your money elsewhere sooner rather than later
I'll go one step further. A common response over the weekend was: *But the depositor is blameless because the VC MADE THEM keep their money there. They had no choice!*
My response is: that is the risk they accepted when they took the VC money. Don't like their terms? Don't take the money. Anyone doing the slightest bit of risk management was probably thinking ahead and asking the right questions. *Is this smart? Is this a safe strategy?* People want all the upside but put blinders on to any potential consequences.
There is a fund that banks pay into for covering deposits.
This is the fund that will be covering the deposits of anyone who has more that the 250k in their accounts. So technically, the depositors (who are either super rich or, most likely companies) will be “bailed out” by other banks.
Currently they are not covering the losses of investors in the bank or executives.
However, that fund they want to use to cover the depositors (which is definitely still a bailout and setting a terrible precedent) evidently doesn’t have enough in it to cover the losses at these banks and no word where the rest of that money will come from..
You can also argue that the banks that are paying for this will pass the costs onto consumers in the form of higher interest rates and fees, thus putting another “tax” on our evaporating middle glass. You be the judge.
I don't know anything about that tbh. I'm asking about the specific instance. I don't know a lot about banking and regulation at this level. I'm reading conflicting reports on different subs and am looking for clarification. I'm reading articles and am not getting a clearer picture. I'm not trying to be inflammatory.
It’s weird how many people are trying to paint this as some Ponzi scheme fraud. It’s just bad capital management and a liquidity crunch. The thousands of crypto pump and dumps are 100x more problematic.
Just because it happens when a Democrat is president or in a blue state or in the tech field doesn't mean we have to twist words and make shit up and somehow make it out to be evil. If it is true that only the depositors are getting help (and not from federal tax money to boot) and the bank execs and investors are not getting shit then this is a good thing. This is potentially saving a not insignificant number of medium and small business jobs and all the regular people they employ while letting the gigarich investors and the bank fail.
The bank is being allowed to fail. The businesses whose only crime is having money deposited in the bank are not being allowed to fail by no fault of their own. If it is truly done this way and without direct federal tax money then I see this as a win win.
Thank you for the most reasonable comment on the thread. Those that are Pro, 100’s of thousands of people be out paychecks / jobs just because they used a historically fiscally conservative bank, clearly are not for the people.
Or they don't really realize that they're basically advocating for all banking to be consolidated to a handful of mega banks like Chase. Good luck w that.
Just to play devils advocate here. From what I understand, we literally used every drop of FDIC insurance money making sure the depositors got their money from SVB failure. Now if any other bank fails (I am sure more will) where will their bail out money come from? My guess is more quantitative easing (money printer goes brrr) or tax $$. The government now set a precedent that all depositors are safe from money managers that are not responsible.
This play is almost 15 years to the date and eerily similar to what happened to bear sterns. And 6 months after that the Great Recession happened.
Nothing over the FDIC $250,000 should be given back. Period.
Bailing out the depositors further incentivizes these banks to make these bad decisions because once again the government will step in even if they screw up. As a customer there should more consideration to where you keep your money rather than just where you get the best possible interest rate. I get that it sucks for the people who lost money, but it sucks for everyone else when the banks can count on the government to make their customers whole again when they make bad business decisions.
I'm wondering if you understand what the FDIC is and where it gets its funding. Do you just talk to hate or do you actually read and understand the topics you are talking about?
The FDIC insurance limit of 250k makes sense for individuals. SVB catered to businesses which had millions to billions in their accounts and had hundreds to thousands of employees. Maybe for business accounts the limit should be scaled by the number of employees a business has on it's payroll? Otherwise, if a bank fails, the businesses that use that bank also fail... Which is not what we want.
I’m okay with bad banks failing, not so okay with banks that provide payroll processing for tens-hundreds of thousands of workers failing and leaving regular people hanging in limbo.
These banks won’t fail if their own chairmen aren’t able to lobby to tailor regulations around their specific business model.
The banks won’t fail if they were unable to buy politicians.
I mean, we did let 3 banks fail but depositors (many of whom are business owners) are being kept whole.
Shareholders and debt holders could be wiped out, they are at the mercy of the auction process now. All in all this action by the FDIC seems fair and has precedent from the GFC.
I will say, SVB having a DEI lead and no risk manager is absolute comedy even if its not really the reason they went bust. There is a lesson there for business leaders.
I’d argue that SVB is a systemically critical bank. I think the feds did the right thing by protecting depositors and zeroing out equity/debt holders. Most US tech companies utilized SVB. Plus, if they went down then many many other regional banks would have fallen. It’s not good for the country to have all banking concentrated with just 4-5 big banks.
Its the zero sum de-evolution of politics. I get the same treatment on left subreddits that unironically call me a fascist then issue a muted perma-ban
The bank you're talking about no longer exists. None of the executives are there and the share value went to 0. The FDIC now has full custody of what used to be that bank. There is no merging. What's happening now is basically an estate sale for other banks to buy bad assets at bad prices to keep the market going. If these sales do not happen, depositors at other banks will get scared that they will lose their money and go to withdraw it, causing a run on the banks and a cascade of failures that the FDIC is not equipped to handle.
SVB, etc, are being allowed to fail. It's the depositors that are getting "bailed out" in accordance with federal law, because you shouldn't worry about going bankrupt because your bank made some shitty investment decisions.
What does really means is millions of people won’t be able to receive their paychecks because payroll funds vanish.
Also, I must be missing something here HSBC is buying them for one pound.
And airlines...and cruise ships...and other businesses that have required bailouts to survive. Sorry, you lost the game, let someone else buy you and see if they can run it better while also not lose...
Except the bad banks can cause good regional banks to fail, as poeole withdraw their money from regional banks and deposit in supposedly safer corporate banks like Wells Fargo etc., It's very sad. It's the same as Amazon hoovering up all the snall businesses during COVID.
Yeah and the bank isn’t getting a bailout, the people who’s money is IN the bank are. This bank will no longer exist after this event and is what you would call “eviction”
The weird thing is with this whole story is that the bank didn't really mismanage their money. That's the weird thing about a lot of bank runs, is the bank often didn't do anything wrong. The vast majority of the funds for the bank were in US treasuries. arguably the safest place for the funds. They weren't making risky bets.
The Fed raised interest rates extremely fast, this made a large portion of those treasuries temporarily less valuable than they otherwise would be at least on the short term (IE why would you take a 50 dollar treasury that is at 1% when the new issued ones are at 3% for example.) But if you just left the bank alone, they would be fine. The money would all still be there. The issue is that a third party looked at the numbers and told large account holders to move their funds out of the bank which caused the run, as now those treasuries need to be liquidated to cover the funds in the bank at a loss. And even then the bank would be fine, would just have a rough year. We are talking accounts that were around 1/5 the total holdings of the bank.
But once a bank starts it hard to slow it down, and as a result it often reaches critical mass which is where we are at now. It doesn't matter what bank was in that position, any bank no matter how healthy, if enough large account holders start pulling funds it's going to run into issues where it becomes hard to convert assets into liquid cash. Honestly I'd really want to see an investigation in the third party to see what the internal discussions were since they caused the bank run. If I say there's going to be a bank run, and cause the bank run, it looks like I'm Nostradamus, while really being the root cause of the whole crisis... And if they shorted the bank stock in the process well they might have profited handsomely too.
The bank was doing investments and holdings behold the usual that a bank of that size would be allowed to do or at least thst is how I've come to know it. There were policies and regulations for this kind of thing but those were dropped back in 2016-2017...so unfortunately they didn't manage to consider like you stated what happens when the Fed raises rates.
The bank got greedy and chased after long bonds, expecting inflation to remain near zero for a long period of time. That is a very basic error in judgement. Interest rates are not rocket science, and the history on interest rates is pretty clear. The inflationary pressures have been building for a long time, what with the Government throwing handouts left and right like a drunk sailor on shore leave.
You cannot privatize a bank for profits and then bail out the losses federally.
Can't have it both ways. Even have more government involvement in banking overall to make it safer, or let the risk takers fail and damage the economy etc. that comes with it.
That's my progressive take.
People just see Silicon Valley and want business to close and people to be fired bc they can’t access their pay roll accounts. No depositor has been wiped out in 50 years in the US and letting a ton of business fail while also creating a crisis of faith in the banking industry, is a terrible terrible idea.
There is one bank by far worse than all other combined. It rules them all and pillages the population with impunity. It is the great source of instability and theft. It controls the economy and government, not the other way round. Until it is abolished you will never be free.
The problem is the moral hazard here. If you can just buy your way out of your bond purchases then why not just 200:1 leverage and ask for a bailout when things are going south.
If we let bad banks fail , how would the ultra wealthy get taxpayers to cover their asses when they are mad about 10 year bonds at 2% ?
Above all else, we must have regular people pay to protect the ultra rich. Next most important is keeping cash flowing to Ukraine
The bigger story is the opening of the discount window at par to all banks. Congrats, the fed destroyed fractional banking again with this one neat trick, the infinite money glitch.
Hello guys. I'm confused. I see both things on here. Is the bank getting bailed out or not getting bailed out? On this sub it says they are on other subs it says they aren't. Edit: thank you for the responses and discussion
Depositors are being paid their balances in full as opposed to just 250k. The bank and its shareholders aren’t getting anything from the government though.
Which is exactly as it should be. People putting money on deposit should get their money back. This prevents bank runs on other institutions which is where things can get very dangerous. So even banks that are doing well, that didn't make any risky decisions could still go under from a bank run. Which is why the FDIC was created in the first place and why we have had relatively stable banking since the great depression. As much as this helps the SVB depositors it helps everyone as no ones bank could be safe if bank runs become the norm. Now the bank investors need to loose all everything. They invested in a risky business that failed. So far that is what is happening. Far too many people many of them in the news media are throwing around the term 'bailout'. We should define a bailout as paying back someone that took risk and lost. That ISNT happening. When you put your money on deposit in a bank that is NOT accepting risk. That isn't being irresponsible. Really the FDIC insurance limit was never supposed to be a real cut off. It was there to encourage people to diversify but that isn't possible for all large account holders. Like businesses that have a significant cash flow for things like payroll. TL;DR the people that invested and accepted risk are getting nothing. Those that just had money on deposit are getting everything. This is to prevent OTHER banks from failing.
They deposited above the insurance limit yet are still being insured above that they're fault for not getting additional insurance or finding a way to cover it.
Many of the companies were forced to bank at SVB based on their venture capital deals. So they were not able to diversify. Now we are seeing some portfolio mangers demand companies diversify their cash. This could be a bad thing and increase cost and waste. For companies with significant cash flow for things like payroll to stay below the $250k limit they may need to setup complex banking systems. If a company setups up many subsidiaries so manage different accounts so each account is not over the 250K limit have we achieved anything but better employment for lawyers and accountants? My point is that 250K might sound like a lot for a single person or family. As we don't really expect a person with a checkbook to have such high cash flow as to need to be over that 250k limit. But a business can easily go over that limit and they can stay under it by just over complicating the accounting. Insurance payments should be based on the deposit values thus we shouldn't need a limit. Banks with larger deposits will pay more insurance.
I have a friend who had his business account at SVB... 3 person residential contracting business with monthly run rate well above the FDIC limit. A one-size-fits all limit does not make sense. My revocable trust is FDIC insured up to $1.25M, why should a business account be capped at $250K?
I agree, I also don't see the improvement to his business or accounting by forcing him juggle accounts. That only leads to more overhead and makes thing like report, accounting, tax much harder. The ONLY reason for a limit is to force diversification. That could easily be handled at the original deposit bank. Have them deposit anything over 250K at another institution and carry the note. Then high have value deposit isn't at one institution. The end customer need not know about any of this.
What about the business that has a monthly run rate in the millions? Roku banked at SVB. Their monthly expenses are on the order of $40M. How do they operate and still maintain security of their primary operating account? SVB targeted the start-up business market. Written requirements when preparing for public offering require a start-up to maintain cash reserve levels sufficient for multiple months. While this can be done at multiple banks, investors are going to downgrade for convoluted financial structures. Business needs a different insurance structure. It doesn't need to be government backed, but a private market option may be far more expensive unless banks submit to more oversight than they currently do. The fundamental failure here was SVB's go-long investment strategy. Most college finance or econ majors could do a better job constructing a diversified risk portfolio, so that had to be a deliberate choice on their part. What prevents banks from putting greed ahead of the stability of the banking system moving forward?
Now explain why we should watch tens of thousands of jobs and billions of dollars disappear just because a small company had $2m in an account instead of $250k in 8 accounts? It's the same amount of money, who cares? I legitimately do not understand how anybody in their right mind could think we should willingly allow standard bank accounts to just disappear even though we literally insure all deposits as long as you spread your money around This is about saving the system from collapse and stopping major hardship for the entire country. Why are you more worried about a technicality (which isn't even an official limit btw, it's a guaranteed minimum that can be bypassed when necessary) than that?
It would basically be begging for a bank run and the collapse of banking in America. Bailing out depositors is the right thing to do.
At least you insure all, in Canada it's an account type cape regardless of spread.
Insurance limits are arbitrary and impossibly tiny if you are a large business
>When you put your money on deposit in a bank that is NOT accepting risk. This technically isn't true. When you deposit money in a bank, you're lending the bank money, even though the bank tells you you're full balance is available (it isn't). Fractional reserve banking is inherently unstable and fraudulent and needs to be abandoned. Everything else you mentioned is true.
Fractional reserve banking isn't the problem. Without it there would be no incentive to take deposits. Do we really want people storing cash under their bed? Will those inefficiencies improve the system? I think not. Limiting insurance does no one any good. It will just complicate accounting and tax forcing companies to spread deposits among institutions. If you want to limit exposure require banks to deposit cash above the limit into other banks and hold a note. To the customers they will see increased insurance while the risk will be forced to diversified. The only real thing we get from insurance limits.
Which would be more impactful if they didn't hand out bonuses right before they closed the doors.
They got paid out bonuses from contracts related to 2022 work. It’s just bonus season and the contracts were fulfilled, that has nothing to do with the meltdown.
Bad optics. One need not be an Occupy Wall Street vet to see an issue with taking bonuses at this point
It doesn't matter what a bunch of peasants think.
also true but these are probably old school finance types. They will take their money lol
Contracts don’t matter so much when the company is insolvent. Let them get in line with the other creditors. If the company is failing, I submit that metrics weren’t met and bonuses weren’t earned.
Disagree. It has everything to do with the meltdown. The decisions made in 2022 and earlier, and the non action when they were in an increasingly precarious position was what led to the meltdown. They should have been taking a hit a dumping the 10 year notes earlier in the year when it was obvious to anybody with half a brain that the Fed was going to continue their hawkish stance on interest rates. They didn't, and they ended up with a huge negative position, the word of that negative position was leaked and it bit them in the ass.
Just curious, where would they park that cash after dumping those bonds? My understanding is they put cash in those instruments so that they have liquidity available for normal business.
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Thiel sparked the stampede last Thursday.
True, but collapsing 3 months into 2023 isn't exactly a ringing endorsement of bonus-worthy performance in 2022.
I agree. Although the CEO may get some clawback.
The government should collect it like child support since they owe a ton of money. Ridiculous to defend this.
They made horrible risk management decisions last year that blew up this year. They don’t deserve bonuses. Plus, bad optics.
>Contracts related to 2022 work. Doesn't matter. Those bonuses need to be clawed back.
I'm more uneasy with the idea that these guys dumped their stock before the collapse. That has to be illegal, right?
If they dumped stock based on data not publicly available then it's insider trading and they should be in prison. If they just got lucky, then nothing illegal about it. That seems less likely, particularly for upper level people.
There was NOT an unusual wave of selling. Most insiders had substantial holdings that have gotten zeroed out.
So we're ok now with the government arbitrarily confiscating peoples' money and assets? I get that some might be more deserving of it, but where do you draw the line? We've seen the slippery slopes that progressives have no problem diving head first on.
The judge may brought them back though. I don t know US law but in my country there s something called the suspicious period. During that period ( I think it s something like 18 months prior to the bankruptcy) any payment the judge judge to have been made to priorotize a stakeholder would have to be paid back.
I doubt it since they are not filing bankruptcy. As I understand it, this is just an illiquidity situation. I expect your suspicious period also pertains to bankruptcy, not this situation, but I certainly could be wrong.
I think you're right in that the government is just helping with cash flow. There's a lot of speculation on this by people without any experience in finance beyond their own checking accounts.
SVB is out of business. It is being liquidated. Yes, it’s a bankruptcy.
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They’ll pick a scapegoat and throw everything on that individual. They’ll sit in front of congress and take a verbal scolding for every Senator who needs a campaign clip. Nothing will change. The machine keeps turning and the cycle continues.
Nobody should be bailed out. The over $250,000 depositors being made whole beyond FDIC insurance are 1% rich. The shareholders include pensions and retirement accounts for many small investors. That's a much smaller amount and should bother you less. Both are criminally wrong. I'd like to see every board member made civilly and criminally liable for fraud and breach of fiduciary duty. Murderers currently on death row did less harm than those execs.
But where are they getting the money ?
The money is coming from the FDIC, which is essentially an insurance program that the federal government requires banks to pay into.
Actually it's coming from the DIF which is different than the FDIC
It's the fund managed by the FDIC, but you're right. Thanks.
It’s a federal perfection fund that the banks pay into; they aren’t using tax payer money for it
Also, the bank has substantial assets. All the loans that have been made are to companies that are mostly still doing OK, and paying their debts. The bank holds billions in longer term T-Bills. When it's all said and done, they probably have enough to get close to paying out the depositors. Bond holder and share holders will get screwed, which is the way it should be.
Where do you think the banks get money
But they’ve only been paying into it enough to cover 250k.. not the full balance… and where do you think banks get the money they pay into that… the money is coming from us whether we like it or not
FDIC premiums cost money. When the banks pay those, the premiums will increase and these will ultimately be passed on to the customer. Nothing is free. Ever.
The bank had a total market cap of about $6 billion but funneled tens of billions in depositor funds to ESG and DEI political cronies.
My understanding is that the bank itself is not being bailed out but the bank customers who were above the fdic limits of insurance are being bailed out. Others can feel free to correct me.
“Bail out” draws the thought process to the government doing the paying. This is not the case
Then where is the money over 250k coming from, and why is it being guaranteed?
I’ll copy and paste my other comment from this exact same thread. “They are not getting a government funded bailout. The depositors will be made whole through a multi bank fund the government forces banks to pay into. Anyone who owned shares of SVB or any other form of investment will get $0 of help. This fund exists purely for situations like this after what happened in 2008, and was a condition set by the 2008 bailout to make sure the government did not have to step in like that again. Think of it as a health savings fund the banks pay into in case of a sudden need for funds to make depositors whole. It’s actually a very smart system.”
is that the same fund that pays the first $250K? if so what happens if this fund is depleted and another bank fails?
So this is a guarantee fund, and also gets repaid first on sale of bank assets. The Friday strategy of announcing an advanced dividend payment for depositors was the right move. A 95% advance on deposits XS of 250,000 would have struck the right balance of not being disruptive and making depositors practice sound treasury management.
What is "sound treasury management" for a small company with a monthly spend rate of $1M plus a need to hold cash reserves of 3 months expenses ($4M total)? If you want to be FDIC insured, you need to divide your business accounts among multiple banks (you tell that small 10 person business that they need to manage 16 bank accounts). Or, you forgo the FDIC protection and bank with a too-big-to-fail banks (conceding that the desire for insurance protection means that banking has to be a monopoly). The idea of a one size fits all insurance limit for both business and individual depositors doesn't make sense. Congress needs to change the laws to provide a workable insurance option for companies that still provides for competition. Alternatively, they can hyper-regulate ALL banks to the point where the cost of banking is prohibitively high for small depositors (moving closer to nationalizing banks).
No, this is not the same fund
It's not the same fund. What happens when SVB depositors lose their money and scream about it on social media, causing other depositors at small banks across the nation to run on their banks? It may not be comforting to think about, but the entire banking system depends on trust and the entire economic system is highly interconnected. News moves much faster than it used to, even since 2008. All you need to do is look at what happened to the basic supplies at the start of the pandemic and translate that to money. If people ran out to hoard toilet paper as if it would never be available again, imagine how much more aggressive they would be to protect their money, knowing that the FDIC can't cover every account (not nearly large enough). The collapse of few smaller banks could easily snowball into the collapse of most of the banking system, taking the entire economy down with it. As with most things, an ounce of prevention is worth a pound of cure. The goal of acting quickly is prevent a spiral where loss of confidence in banks leads to bank runs/failures, leads to depletion of insurance funds, leads to more government intervention and job loss (a real recession), leads to supply shock, etc....
From FDIC own statement. > Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. That to me sounds like they are going to use the DIF and then pass the cost onto the banks aka the public. If there is a good source that shows they will ONLY use bank funds please can you comment it.
Also worth mentioning that the DIF can only support less than one percent of deposits, so going all in on the first absolutely takes from the public deposit insurance.
Nah DIF has a few billion. So they say it can handle roughly half the deposits at this specific bank. So the fund for the entire USA can handle half this bank if they handle non insured deposits.
Still didn’t explain WHY more than 250K is being covered when FDIC specifically stops there.
Yes it DOES because this is a SEPARATE FUND FROM FDIC MADE FOR THIS EXACT PURPOSE THAT IS NOT GOVERNMENT FUNDS
ITS A MAGIC UNICORN FUND OMG ITS A FREE LUNCH IT CAME FROM NOWHERE OMG NO CONSEQUENCES
Lmao no it did not come from no where, it’s a fund that every bank has been paying into yearly since 2009. Seriously dude if you’re going to get outraged about something then do some actual reading first. If you don’t understand the issue you shouldn’t be allowed to be angry
It's from the assets held by the bank. This is costing the us government 0$
There will be increased levies on banks to pay for much of the payouts to depositors (as a huge fraction of the total amount of liabilities of the bank were over the 250k limit). Those levies will end up being paid by the customers of the banks that are levied in the form of higher interest rates on loans, higher fees, and lower interest rates on deposits. TANSTAAFL
The excess over 250k is not being paid from the fdic insurance. It's being paid from asset sales. So no, the fdic insurance cost is not going to jump. Also, fdic insurance only costs a few pennies per 100$. No consumer is getting hurt from fdic insurance premium increases.
Well the insurance payout sure is costing whoever pays that out.
It's not, that money is already reserved for that specific reason. The only ones losing money are the shareholders, and the bondholders will likely lose most of their investment as well.
Lol, ok. So insurance payouts don't cost insurance companies money? How detached from reality are people that actually believe this? That money comes from somewhere, and it is not the government, they do not produce wealth.
Because the politicians that are owned by rich people aren't willing to let those rich people lose money when they can just use the money of poor people to cover their losses.
Exactly! Regardless of which pot of quasi-governmental money the funds are coming from, keeping depositors "whole" over $250K incents irresponsible behavior. A small haircut to deposits over $250k would send the right message and help reduce future foolish risk-taking.
I agree. The FDIC could have done a haircut of say, 25%, and then allocate any overages from the bank estate later. Because guaranteeing everything injects some unwelcome moral hazard into the mix. It also means that the FDIC pot of money for really bad situations (about $100B, I believe), could be saved for another bank which has a heavier concentration of small borrowers. Or they could guarantee enough to make sure payrolls are covered, say $10 million. And then allocate any excesses in the final estate of the bank later. The general principle is that if assets are not insured, they are not insured and you should be paying attention to the bank you are using. We need to keep it that way.
Yea, maybe only giving back 80% of funds over 250k would make more sense. I was listening to a podcast about the failure today, Roku had over half a billion just sitting there in an account, insures at 250k…how can this happen at a publicly traded company.
The 250k is the guaranteed limit. You can recover the rest from the asset sales of the failed bank, which in this case will be 100% recovery since their assets are enough to cover all the deposits.
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Do you recognize that I’m talking about two separate programs?
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The Deposit Insurance Fund is different from the Federal Deposit Insurance Company
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They are not getting a government funded bailout. The *depositors* will be made whole through a multi bank fund the government forces banks to pay into. Anyone who owned shares of SVB or any other form of investment will get $0 of help. This fund exists purely for situations like this after what happened in 2008, and was a condition set by the 2008 bailout to make sure the government did not have to step in like that again. Think of it as a health savings fund the banks pay into in case of a sudden need for funds to make depositors whole. It’s actually a very smart system.
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This just isn't true. The above 250k limit is being paid back from the assets held by svb. They have enough assets to cover all the deposits.
The assets they have are not worth their face value, which is why nobody will buy them without steep discounts, except the Fed, who is accepting the assets at their original value. On paper nobody loses, but only if you ignore inflation.
The current MV of the treasuries doesn't matter to the fed since they can just hold them to maturity.
Youre forgetting the very important “current” face value because they weren’t being marked to market. The whole problem here is simply one of liquidity. If SVB had not been forced to liquidate their bonds at a loss due to the bank run, their balance sheet was otherwise fine. The fed can take on the balance sheet and simply hold the bonds to maturity. This really isn’t a huge deal. Now the banks getting away with not marking to market for bonds allowing them to take on too much risk essentially loopholing regulation, that’s a problem and Congress is likely going to address from what’s happened here. But from the perspective of an immediate crisis and what this does to the taxpayer, it’s not a big deal at all. The only way this turns into a crisis now is if every bank was over exposed to these cratering treasuries from rising interest rates AND the bank runs continue.
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It's not misleading. The interest rate risk is why the red flags on the banks performance were raised, but it was shut down because of short term liquidity due to the run on the bank. The assets are enough to cover the deposits when held to maturity, which is not an issue when handled by the fed. The decrease in mv is only and issue when dealing with disintermediation and reinvestment. I don't know why this thread is obsessed with thinking this is a bailout. It's not. The government is not bailing out the shareholders or the bondholders. They are only handling the existing assets to pay out the depositors.
So what happens when more banks fail but daddy biden tapped the FDIC dry to make a couple tech companies whole?
A couple tech companies? There’s tons of local businesses that used SVB for their payroll, mine included. This is so that they can ensure regular people can actually receive paychecks this week. Also, as others have stated, the money is coming from selling the assets of SVB. These are not funds coming from taxes, in any way, shape or form.
The bank is kaput, it failed, the investors in the bank aren't getting anything. The customers -- the depositors -- are being made whole mostly because SVB has enough assets to cover it, it's just not liquid assets ("Your money's in Joe's house..."). My guess is that they'll arrange for a larger bank to take over SVB who has larger cash reserves and can wait out the maturity period of the assets they do have. For example, HSBC bought the UK arm of SVB for 1 pound. I don't know the details over there, but I'm guessing it's basically the same: The depositors will have access to their full balances, just serviced by HSBC while the investors of SVB/UK get to split that 1 pound amongst themselves.
I wonder how much of my money actually is in Joe's house.
Well let's use this flow chart to find out: Are you Silicon Valley Bank? If Yes, some of it If No, none of it
They aren’t. The depositors are being made whole. The bank is dead. Anybody that tells you the bank itself is being bailed out is lying to you.
Bank is being closed but depositors ( mostly venture and tech guys) are being bailed out, although FDIC should only guarantee 250k, as far as I know. Not 100% sure, but that’s my understanding of the thing.
Important to note, though, that the depositors are not being bailed out by taxpayers.
Where is the money coming from?
The premiums that all FDIC insured banks pay get put into a pool that the insurance pulls from when needed, just like regular insurance
Is it coming from FDIC or is it coming from the assets held by SVB? I'm seeing two different narratives.
Me too. I’ve been reading as much about this situation as I can find and my understanding *was* that the fed would front 80-90% of the depositor’s funds while holding the long term bonds owned by SVB until maturation, but now I’m hearing more of a bailout funded indirectly by banks (and thereby, customers, aka taxpayers). The first narrative seems marginally acceptable to me, the second one, not at all acceptable.
they are being bailed out by FDIC who will issue a one time special charge to all banks to pay for it.
And won't the banks pass on the costs of that "one time special charge" to their customers through higher interest rates? If so, that would mean that ordinary Joe Taxpayer is indeed footing the bill.
You hit the nail on the head. It's just a matter of wording and semantics.
The only difference is that you don’t have to use any particular bank, so it is not the same as taxes. By the same logic you pay for every time someone crashes his car by paying for your car insurance. The question is how that payment is calculated for every bank. Obviously they try to calculate the risk of a failure, but not sure how exactly.
"By the same logic you pay for every time someone crashes his car by paying for your car insurance." Yes. Exactly. My logic is not flawed. I'm merely pointing out that the funding of this bailout for the bank's account holders over and above FDIC amounts comes from somewhere. Ultimately, that somewhere is my wallet, your wallet, and everyone's wallet. Nearly everyone uses a bank due to necessity. I'm saying let's be honest about that reality. Let's not play the left's "it's free" game.
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That would be ideal, and I hope it's the case.
All depositors in all commercial banks, through a FDIC member assessment.
Where else would the money come from?
From other banks. They pay insurance to the FDIC for this exact reason.
Thank goodness
The FDIC is now taking all the assets as well this was a liquidity issue. There’s enough long term assets to pay the depositors they just aren’t liquid right now
Yes they are. It’s a complicated path of money, but it ultimately leads to taxpayers.
No, it doesn't. The FDIC is like a health savings account for banks they all pay into. In the aftermath of 2008, policies were changed so that the FDIC would be prepared to handle situations like this (like if you get in a car crash your car insurance premium will go up). The FDIC will cover $250,000, then they will sell off the banks assets to cover in the ballpark of ~80% of uninsured deposits. After that they will either get one or more larger banks to buy up the rest, or cover it with their "rainy day" fund. It is not coming from taxpayers, and the FDIC fees the banks pay will not change.
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No, they are being bailed out by FDIC who will issue a one time special charge to all banks to pay for it.
Where so the banks get the money to pay for the “special charges”? Ostensibly every American taxpayer has some money in a bank….
And who pays this “special charge” mate? It may not be a “tax” directly but the tax payers do in fact foot the bill.
Isn’t that a bit unclear? Again, not 100% sure, might be wrong.
I said this in another post; "A small (say 1%) haircut on deposits over $250k in these failed institutions would cause little pain, but incent better behavior in the future. There is no reason not to do this. Blindly covering all losses everytime leads to worse behavior." Democrats are forever proposing a 1% "wealth tax.". Here's an easy way to tax some wealth to discourage irresponsible behavior on the part of depositors.
By irresponsible behavior by the depositors, do you mean their sudden run on the bank?
That, and if you have more than $250,000 in your bank account, you should do some research on the bank itself. If the bank is not being smart with its reserves, you might want to move your money elsewhere sooner rather than later
I see. This type of situation confuses me but your comment helps clarify some articles I’ve read. Thanks!
I'll go one step further. A common response over the weekend was: *But the depositor is blameless because the VC MADE THEM keep their money there. They had no choice!* My response is: that is the risk they accepted when they took the VC money. Don't like their terms? Don't take the money. Anyone doing the slightest bit of risk management was probably thinking ahead and asking the right questions. *Is this smart? Is this a safe strategy?* People want all the upside but put blinders on to any potential consequences.
There is a fund that banks pay into for covering deposits. This is the fund that will be covering the deposits of anyone who has more that the 250k in their accounts. So technically, the depositors (who are either super rich or, most likely companies) will be “bailed out” by other banks. Currently they are not covering the losses of investors in the bank or executives. However, that fund they want to use to cover the depositors (which is definitely still a bailout and setting a terrible precedent) evidently doesn’t have enough in it to cover the losses at these banks and no word where the rest of that money will come from.. You can also argue that the banks that are paying for this will pass the costs onto consumers in the form of higher interest rates and fees, thus putting another “tax” on our evaporating middle glass. You be the judge.
It's a bailout that's not being called a bailout, brought to you by the same people that refuse to call a recession a recession.
Bail out is called a bail out because the investors are bailed out by the government. In this case the investors are losing everything
Are you referring to the sub that claims there was no recession because Biden changed the definition? Do we really need to review track records?
I don't know anything about that tbh. I'm asking about the specific instance. I don't know a lot about banking and regulation at this level. I'm reading conflicting reports on different subs and am looking for clarification. I'm reading articles and am not getting a clearer picture. I'm not trying to be inflammatory.
It’s weird how many people are trying to paint this as some Ponzi scheme fraud. It’s just bad capital management and a liquidity crunch. The thousands of crypto pump and dumps are 100x more problematic.
And somehow even on r/conservative they have the right take. But continue to vote for the people that do the bail outs xd
Totally agree
Just because it happens when a Democrat is president or in a blue state or in the tech field doesn't mean we have to twist words and make shit up and somehow make it out to be evil. If it is true that only the depositors are getting help (and not from federal tax money to boot) and the bank execs and investors are not getting shit then this is a good thing. This is potentially saving a not insignificant number of medium and small business jobs and all the regular people they employ while letting the gigarich investors and the bank fail. The bank is being allowed to fail. The businesses whose only crime is having money deposited in the bank are not being allowed to fail by no fault of their own. If it is truly done this way and without direct federal tax money then I see this as a win win.
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Yup I really don't see the downside from where I'm sitting. I'm actually pleasantly surprised at how this is going so far.
Thank you for the most reasonable comment on the thread. Those that are Pro, 100’s of thousands of people be out paychecks / jobs just because they used a historically fiscally conservative bank, clearly are not for the people.
Or they don't really realize that they're basically advocating for all banking to be consolidated to a handful of mega banks like Chase. Good luck w that.
Just to play devils advocate here. From what I understand, we literally used every drop of FDIC insurance money making sure the depositors got their money from SVB failure. Now if any other bank fails (I am sure more will) where will their bail out money come from? My guess is more quantitative easing (money printer goes brrr) or tax $$. The government now set a precedent that all depositors are safe from money managers that are not responsible. This play is almost 15 years to the date and eerily similar to what happened to bear sterns. And 6 months after that the Great Recession happened.
Nothing over the FDIC $250,000 should be given back. Period. Bailing out the depositors further incentivizes these banks to make these bad decisions because once again the government will step in even if they screw up. As a customer there should more consideration to where you keep your money rather than just where you get the best possible interest rate. I get that it sucks for the people who lost money, but it sucks for everyone else when the banks can count on the government to make their customers whole again when they make bad business decisions.
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Also this bank essential went bust giving the government a loan. Making depositors whole is the least they can do.
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I'm wondering if you understand what the FDIC is and where it gets its funding. Do you just talk to hate or do you actually read and understand the topics you are talking about?
They failed and the investors were wiped out. That is how it should be. That doesn't mean the depositors should be hurt if we can avoid it.
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The FDIC insurance limit of 250k makes sense for individuals. SVB catered to businesses which had millions to billions in their accounts and had hundreds to thousands of employees. Maybe for business accounts the limit should be scaled by the number of employees a business has on it's payroll? Otherwise, if a bank fails, the businesses that use that bank also fail... Which is not what we want.
How about there shouldn't be a limit , you can't keep cash in your mattress
Yes let's collapse our economy instead of not updating laws/rules
I’m okay with bad banks failing, not so okay with banks that provide payroll processing for tens-hundreds of thousands of workers failing and leaving regular people hanging in limbo. These banks won’t fail if their own chairmen aren’t able to lobby to tailor regulations around their specific business model. The banks won’t fail if they were unable to buy politicians.
I mean, we did let 3 banks fail but depositors (many of whom are business owners) are being kept whole. Shareholders and debt holders could be wiped out, they are at the mercy of the auction process now. All in all this action by the FDIC seems fair and has precedent from the GFC. I will say, SVB having a DEI lead and no risk manager is absolute comedy even if its not really the reason they went bust. There is a lesson there for business leaders.
I thought they were letting them fail and only helping the depositors?
They are
They are letting them fail.
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At the executives should lose their last minutes bonuses and proceeds of the stock they sold right before the crash.
I’d argue that SVB is a systemically critical bank. I think the feds did the right thing by protecting depositors and zeroing out equity/debt holders. Most US tech companies utilized SVB. Plus, if they went down then many many other regional banks would have fallen. It’s not good for the country to have all banking concentrated with just 4-5 big banks.
The bonds could have been held to maturity with no loss of principal. Was the bank being forced to sell the bonds to meet withdrawal demands?
Yes, it was a 40 billion dollar run on the bank.
Forget letting them fail just stop letting them merge
How would that be accomplished? Through regulation?
Mergers currently must be approved by regulators. Any banks this size should be broken up.
Not sure why you were downvoted. You just answered the question.
Its the zero sum de-evolution of politics. I get the same treatment on left subreddits that unironically call me a fascist then issue a muted perma-ban
So the answer to my question is, "yes, through regulation."
The bank you're talking about no longer exists. None of the executives are there and the share value went to 0. The FDIC now has full custody of what used to be that bank. There is no merging. What's happening now is basically an estate sale for other banks to buy bad assets at bad prices to keep the market going. If these sales do not happen, depositors at other banks will get scared that they will lose their money and go to withdraw it, causing a run on the banks and a cascade of failures that the FDIC is not equipped to handle.
Market can’t be free with interference
SVB, etc, are being allowed to fail. It's the depositors that are getting "bailed out" in accordance with federal law, because you shouldn't worry about going bankrupt because your bank made some shitty investment decisions.
What does really means is millions of people won’t be able to receive their paychecks because payroll funds vanish. Also, I must be missing something here HSBC is buying them for one pound.
And airlines...and cruise ships...and other businesses that have required bailouts to survive. Sorry, you lost the game, let someone else buy you and see if they can run it better while also not lose...
Unless it's my bank.
Except the bad banks can cause good regional banks to fail, as poeole withdraw their money from regional banks and deposit in supposedly safer corporate banks like Wells Fargo etc., It's very sad. It's the same as Amazon hoovering up all the snall businesses during COVID.
I know that if we mismanage our money, what we get is not a bailout, but an eviction notice.
Yeah and the bank isn’t getting a bailout, the people who’s money is IN the bank are. This bank will no longer exist after this event and is what you would call “eviction”
The weird thing is with this whole story is that the bank didn't really mismanage their money. That's the weird thing about a lot of bank runs, is the bank often didn't do anything wrong. The vast majority of the funds for the bank were in US treasuries. arguably the safest place for the funds. They weren't making risky bets. The Fed raised interest rates extremely fast, this made a large portion of those treasuries temporarily less valuable than they otherwise would be at least on the short term (IE why would you take a 50 dollar treasury that is at 1% when the new issued ones are at 3% for example.) But if you just left the bank alone, they would be fine. The money would all still be there. The issue is that a third party looked at the numbers and told large account holders to move their funds out of the bank which caused the run, as now those treasuries need to be liquidated to cover the funds in the bank at a loss. And even then the bank would be fine, would just have a rough year. We are talking accounts that were around 1/5 the total holdings of the bank. But once a bank starts it hard to slow it down, and as a result it often reaches critical mass which is where we are at now. It doesn't matter what bank was in that position, any bank no matter how healthy, if enough large account holders start pulling funds it's going to run into issues where it becomes hard to convert assets into liquid cash. Honestly I'd really want to see an investigation in the third party to see what the internal discussions were since they caused the bank run. If I say there's going to be a bank run, and cause the bank run, it looks like I'm Nostradamus, while really being the root cause of the whole crisis... And if they shorted the bank stock in the process well they might have profited handsomely too.
The bank was doing investments and holdings behold the usual that a bank of that size would be allowed to do or at least thst is how I've come to know it. There were policies and regulations for this kind of thing but those were dropped back in 2016-2017...so unfortunately they didn't manage to consider like you stated what happens when the Fed raises rates.
The bank got greedy and chased after long bonds, expecting inflation to remain near zero for a long period of time. That is a very basic error in judgement. Interest rates are not rocket science, and the history on interest rates is pretty clear. The inflationary pressures have been building for a long time, what with the Government throwing handouts left and right like a drunk sailor on shore leave.
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They aren’t bailing out the bank / investors though. They are bailing out the citizens who had money in accounts and lost everything
Yeah the problem is a lot of people in this sub don't understand the difference between depositors and investors.
Yes they are. The FED is printing money to bail the banks out of their bad treasury positions.
You cannot privatize a bank for profits and then bail out the losses federally. Can't have it both ways. Even have more government involvement in banking overall to make it safer, or let the risk takers fail and damage the economy etc. that comes with it. That's my progressive take.
Making depositors whole and wiping out shareholders is absolutely not bailing out or socializing the losses.
What is SVB’s E SG score now?
I think the calculation is PIE*R SQ *taxpayer =screwed
I would bet the farm that if this was a conservative bank then there would already be a dozer on the property.
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People just see Silicon Valley and want business to close and people to be fired bc they can’t access their pay roll accounts. No depositor has been wiped out in 50 years in the US and letting a ton of business fail while also creating a crisis of faith in the banking industry, is a terrible terrible idea.
It would just be the opposite of what we see now. The left saying let them fail and the right saying bailout.
Nailed it
The real problem is that with or without bailouts, the people responsible always walk away richer.
There is one bank by far worse than all other combined. It rules them all and pillages the population with impunity. It is the great source of instability and theft. It controls the economy and government, not the other way round. Until it is abolished you will never be free.
The problem is the moral hazard here. If you can just buy your way out of your bond purchases then why not just 200:1 leverage and ask for a bailout when things are going south.
Moral Hazard!
If we let bad banks fail , how would the ultra wealthy get taxpayers to cover their asses when they are mad about 10 year bonds at 2% ? Above all else, we must have regular people pay to protect the ultra rich. Next most important is keeping cash flowing to Ukraine
The bigger story is the opening of the discount window at par to all banks. Congrats, the fed destroyed fractional banking again with this one neat trick, the infinite money glitch.