[quesera]

FDIC did not need a policy change to insure more than $250K per, that was a predefined option in existing policy, available if the bank failure was judged to have risk of systemic contagion.

I'm no economist, but I think the (1-year) window for banks to borrow against the full face value of government bonds and MBS assets is interesting and probably reasonable. These are not risky investments, just illiquid. The Fed will get their money back. Providing liquidity to the system is part of the Fed's job.

[tripletao]

While alive, the SVB deliberately avoided designation as "systemically important", in order to avoid the corresponding regulatory burden. Then as soon as it failed, its depositors got beneficial treatment under a "systemic risk exception". I'm not saying that was necessarily the wrong choice; but do you really think that's a coherent rules-based system?

> These are not risky investments, just illiquid.

It's not a question of liquidity. Similar assets trade with tight spreads, at prices very closely predicted by a textbook NPV model. The price just went down when interest rates went up, exactly as expected. There's no significant uncertainty in the price. Waiting won't make it go up, except in the same sense that waiting turns $100 in Treasury bills into $104 a year from now.

The Fed is making an undercollateralized loan. If a bank fails with such a loan outstanding, then the Fed will lose money. Interest rate risk is as real as credit risk or any other risk, and this would be a real economic loss.

[randomname11]

Well the fed already has the money which was used to purchase the bonds that they’re are now lending against. So I think that this amounts to giving some of that bond principal back early but slightly less in total in the form of interest on the loan.