[paxys]

It's quite an ingenious situation.

- 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?

[TaylorAlexander]

> 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.

[gjsman-1000]

If I were head of a smaller or regional bank, I’d be running for the lawyers, because I would find it very hard to believe that FDIC would extend their offer in a fair and reasonable manner to smaller banks. If they don’t, it’s arguably a form of extortion, using mandatory fees on small banks to only protect big ones. How would that be legal?

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.

[asciii]

> 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

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

[mister_tee]

Apologies if I'm missing something, is this discussing the new Bank Term Funding Program or some other guarantee?

(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

[mister_tee]

late followup, it might indeed be that FDIC removed insurance limits for these two banks?

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...