Alright, let’s jump into the Silicon Valley Bank (SVB) collapse and the current banking panic mania sweeping across the (especially financial) news. I thought the most helpful thing I could do was explain some of the basics and put it into a broader context.
The government has now apparently directed the FDIC to cover *all* SVB deposits, even over $250k, to be paid out of the FDIC insurance fund all American banks pay into. I would love to hear your feedback on that decision relevant to this situation.
On the one hand, since the failure is, as you point out, largely due to Fed policy and poor regulatory oversight, perhaps the extra payout is justifiable. Yet on the other hand, what kind of precedent does this set given that this may be just the first of many bank runs? Also, while some are calling this a 'bailout', I don't think it qualifies, since SVB will still be in FDIC receivership, only the individual depositors will be 'bailed out', not the bank itself.
Anyway, I would love to hear your followup on this matter, given the announced FDIC payout (link to official press release below).
Hey Fritz. Yeah, I have very mixed feelings about this. (1) I'm generally against any bailouts, but that's partially contingent on having a decent banking and regulatory system, (2) if you bailout to prevent contagion and other bank panics, bailing out the depositors and guaranteeing "all deposits in the US", which is what they've said, could theoretically be the way to do it but such an extreme step (a) induces some panic..."what? why? and why now?...holy crap something bad must be happening!" and (b) sets a VERY BAD PRECEDNT and is essentially nationalizing the US banking system. And, (3) while it sounds initially better that we "saved depositors" not the Wall Street fat cats, it'll take people about 1 news cycle to notice that most SVB depositors were rich fat cats, just not from Wall St, and part of the reason they weren't insured is because they deposited waaaay over the $250,000 FDIC-covered amount. So these are multimillionaires who blew past and ignored the limit. These aren't your poor grandmother with her monthly social security check in deposit you are saving. That'll hit the news and be a political weapon soon. I'm sure.
The government has now apparently directed the FDIC to cover *all* SVB deposits, even over $250k, to be paid out of the FDIC insurance fund all American banks pay into. I would love to hear your feedback on that decision relevant to this situation.
On the one hand, since the failure is, as you point out, largely due to Fed policy and poor regulatory oversight, perhaps the extra payout is justifiable. Yet on the other hand, what kind of precedent does this set given that this may be just the first of many bank runs? Also, while some are calling this a 'bailout', I don't think it qualifies, since SVB will still be in FDIC receivership, only the individual depositors will be 'bailed out', not the bank itself.
Anyway, I would love to hear your followup on this matter, given the announced FDIC payout (link to official press release below).
https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm
Hey Fritz. Yeah, I have very mixed feelings about this. (1) I'm generally against any bailouts, but that's partially contingent on having a decent banking and regulatory system, (2) if you bailout to prevent contagion and other bank panics, bailing out the depositors and guaranteeing "all deposits in the US", which is what they've said, could theoretically be the way to do it but such an extreme step (a) induces some panic..."what? why? and why now?...holy crap something bad must be happening!" and (b) sets a VERY BAD PRECEDNT and is essentially nationalizing the US banking system. And, (3) while it sounds initially better that we "saved depositors" not the Wall Street fat cats, it'll take people about 1 news cycle to notice that most SVB depositors were rich fat cats, just not from Wall St, and part of the reason they weren't insured is because they deposited waaaay over the $250,000 FDIC-covered amount. So these are multimillionaires who blew past and ignored the limit. These aren't your poor grandmother with her monthly social security check in deposit you are saving. That'll hit the news and be a political weapon soon. I'm sure.