[lackbeard]

> the point of the FDIC system is for customers not to have to do this kind of risk assessment themselves

It seemed self-evident to me, based on the explicitly stated limit on FDIC insurance, that if you had an amount of money over that limit, you really need to have a plan to deal with that risk, and people who failed to do so should suffer the consequences of their poor decisions. As things stand, the people who did spend the time and/or money to provision for that risk have suffered for it.

I think what many people are having a hard time with (myself as well, sort of...) is how the rules were changed out from under everyone in yet another example of how the rules don't apply to the politically connected.

[tptacek]

As I understand it, the ordinary way FDIC resolves a situation like this is that they simply have the failing bank acquired by a peer bank (a bank of generally the same size and structure), which then takes over the depositor obligations. So it's not as if the ordinary course is that uninsured deposits get zeroed out; it's just that the mechanism FDIC is using is novel and abrupt.

[rufus_foreman]

>> they simply have the failing bank acquired by a peer bank

"Simply".

WaMu - acquired, depositors got 100 cents on the dollar

IndyMac - 50 cents on the dollar

Silver State - 11 cents on the dollar

Depositors have not always been made whole in the past. Calvinball has certainly been played in the past, for IndyMac the FDIC limit was retroactively raised from 100K to 250K.

That's what people are pissed about. The Calvinball rules.

And we know how that works out, if you're in the in group, you get paid, and if you're not in the in group, you get fucked.

As Black Flag once sang, "We're tired of being screwed. Revenge!"

[lackbeard]

I wonder why that didn't happen in this case? Perhaps fear that would just trigger a run on the acquiring bank?

[tptacek]

I don't know either. I've been wondering if it's largely because SVB is a weird bank. They were huge --- larger than American Express --- but with an unusually small and extraordinarily correlated based of depositors. I think it's hard to understate just how strange SVB's customer base was; the closest analogy I can come up with is the Last of Us zombies, all perfectly connected with fungus hyphae.

[temp-dude-87844]

The situation unfolded over a weekend, after SVB shut down Friday afternoon. The FDIC attempted to find a buyer on Saturday, and got at least one interested party, but couldn't close a deal. The Administration was getting anxious over the possible fallout: tech companies not meeting payroll, possible banking contagion, who knows what else? Then Powell/Fed proposed some novel mechanisms for temporary rescue. [1]

They worked together to put out a joint press release, and Biden gave a down-to-earth, rough-and-tumble speech about protecting depositors and kicking the failed executives and bad-luck shareholders to the curb, because this is "how capitalism works". It was an unusually blunt attempt to preemptively push back at the perception that this guarantee of FDIC-uninsured deposits will be branded a 'bailout'. (I predict that this attempt will fail and this will widely be perceived as a 'bailout' in casual and political discourse, which is the exact forum at which they've aimed this message.)

After 2008, the public gained awareness of the consolidation -- both forced and emergent -- that occurs in response to these sorts of crises. Public opinion views these outcomes unfavorably, because they seem unfair and irreversible, albeit no palatable alternatives have emerged that are acceptable to both to the public and government and industry incumbents.

[1] https://apnews.com/article/silicon-valley-bank-failure-depos...

[JumpCrisscross]

> why that didn't happen in this case

Buyers of banks in the last round got screwed. Dimon has been vocal about this. They inherit a string of liabilities that take a decade (or more) to resolve. Add to that, the number of private equity buyers for a $200bn bank is limited.