This is the biggest lie you will ever read (not you specifically, but this pitch).
The funds will be recovered from special bank assessments, which means you and I will pay to bail out SVB and Signature via increased bank fees and more over the next decade. Not to mention the FDIC is guaranteeing depositors will be made 100% whole, which means again, you and I are guaranteeing the deposits if this special bank assessment comes up short or falls through.
So no, taxpayer money is not directly used - that part is true. But it is patently false that taxpayers will not be paying to bail these banks out.
It's a giant political game being played... avoid the look of a recession no matter what. Don't even speak the dreaded "B" word...
The depositors will be paid back by their own money. The money hasn’t disappeared anywhere. It still exists, and the bank will still make a profit as the MBSes it paid into will continue returning money to the bank. It will simply make a profit that’s less than what it could have made with the same shareholder equity with way less risk in other investments. Which is why shareholders got wiped out.
This was a classic bank run. A combination of the concentration of depositors from a single industry, massive swings in the monetary flow of that industry, poor investment decision making, and having regulations loosened on it meant that SVB saw far too many short term depositors call for their money and had too much of that money tied up in long term investments.
The government has the liquidity and the reputation that is needed to prevent this from becoming a problem.
The cost that is being borne by the taxpayers is the cost of people depositing money in smaller industry focused banks, which have greater risk, and lower efficiency. If you really wanted to eliminate the cost, the solution would be to have everyone deposit their money in a handful of Too big to fail banks, which would almost certainly be cheaper and more efficient, but is also a bad economic system because of the political power those entities gain.
The red carpet was rolled out to prevent anyone form being harmed by SVB... and zero lessons will be learned and we'll just do it all again, but with a different name this time.
Everything that happened meant SVB was supposed to fail and drag down all of it's high-flying customers with it. Yet... here we are, pretending this isn't a taxpayer guaranteed big bank bailout during a looming election cycle with record inflation we're also pretending isn't real.
In practice, we just saw that the US government will gladly retroactively change the rules to insure any amount of money. For all practical purposes, trillions of dollars in deposits became insured by US tax payers this week.
And that's on top of the totally-not-QE BTFP facility they conjured up. That is available to all insured banks who have any underwater asset that they wish to move to the Fed's balance sheet at par for a mere ~5% per year.
No, though all banks now have protection against the HTM assets fire-sale conditions which caused SVB to fail, which, from the perspective of stockholders, executives, and non-depositor creditors is a lot better than infinite deposit insurance, because its a lot stronger protection against failure (which wipes out those three groups), even if its not a stronger protection for depositors if failure happens anyway.
> No, only SVB and Signature enjoy infinity insurance.
No, only the balances of SVB and Signature at the time of the failure of the former banks have that. There’s no prospective guarantee inheritable by an acquirer. (Admittedly, any bank that could reasonably bid for them, especially for SVB, would probably independently qualify for the systemic risk exception itself if it suddenly failed, but also any bank that could reasonably bid wouldn’t be in any near term risk of that, either.)
SVB may be called something different today, and probably something different in the near future, but we all know what we're talking about here.
Like I said downstream - if my bank fails next year (or 10 years from now) and I do not get infinite deposit insurance - then where are we? Just the well connected get special treatment? Seems so...
> Like I said downstream - if my bank fails next year (or 10 years from now) and I do not get infinite deposit insurance - then where are we?
In the exact same place we’ve been for the last 15 years (much longer, really, because the last crisis wasn’t the start of this, either), between the time the systemic risk exception was announced for three large banks, and all the bank failures in between where it was not invoked.
A place where the FDIC guarantees $250K per depositor per ownership category per bank but tries to facilitate takeovers that protect uninsured balances and where, with the Treasury and President, might protect something more, if the conditions for the systemic risk exception are determined to apply.
The systemic risk exception has existed since at least 1950, was invoked as far back as 1980, and was easier to invoke (the FDIC could do it on its own) prior to 1991. It was also less necessary prior to 1991, since the FDIC could facilitate a sale even when doing so was more expensive than a payout of only the insured accounts until the least cost rule was put into the law in 1991, and in fact, since the 1960s, the general policy was to, where possible, facilitate a buyout by another bank to protect all depositors even when the cost to the Deposit Insurance Fund was greater than a payout of insured balances.
The arguments about the use of full-protection via the systemic risk exception for SVB fundamentally changing things is just, completely, historically ignorant.
It is disingenuous to say something required a SRE, will be guaranteed 100% by the government (ie. tax payers) - and then also claim it is not a bailout.
I am not putting words in your mouth - that is the logic the government is feeding everyone today.
It is also disingenuous to claim a techy bank that catered to the tech sector posed an imminent risk to the entire banking system, ie the systemic part of the SRE. A bunch of tech elites and big tech companies would have been burned - and some failover would have happened certainly, but this was not a system issue, it was bad choices made explicitly by banking executives at some specific banks.
It is also disingenuous to claim no tax payer money is involved when it is in fact tax payers that are providing all the guarantees here, bear future risks, and ultimately will pay for it with bank fees and more.
The entire thing is a political exercise. Don't look behind the curtain... because it might all topple over.
In writing yes, but the FDIC always makes depositors whole somehow. Otherwise the banking system would collapse.
If some bizarre scenario were to happen (a failure of two of the big four) which the FDIC couldn’t recover, in the words of Dwight Schrute, “you’ve all been dead for weeks”.
> but the FDIC always makes depositors whole somehow.
This lie keeps getting repeated, but while it usually manages to do that (by facilitating a buyout, often before or over a business day – sometimes longer in calendar time because of a weekend – when the bank is closed), it doesn’t always, even when it facilitates a buyout rather than being forced to create a takeover bank.
When it does takeover without facilitating a buyout, it never protects uninsured deposits without invoking the systemic risk exemption.
> Otherwise the banking system would collapse.
Well it does where the banking system would collapse, that’s literally the point of the systemic risk exception.