The math here seems disingenuous. There were 10 accounts with 13B in uninsured deposits. The FDIC used 18B to back the entire deposits of the bank. That doesn't mean 13B / 18B went to those 10 accounts.
A better way of thinking about it would be something like: SVB had 170B (random estimate) in uninsured deposits. 13B of the uninsured deposits were from 10 accounts. So (13B / 170B) * 18B = 1.3B went to those 10 accounts.
> SVB had 170B (random estimate) in uninsured deposits
$56bn [1]. So about 23% of the emergency insured deposits were held by 10 accounts.
If we stuck to the law, that would have been $2.5mm (0.005%). So 10 accounts got a 5,200x courtesy boost in their backing by the full faith and credit by the United States.
$56bn of deposits at point of sale to First Citizens. It had $119bn of deposits at the point the FDIC took over as receiver and then subsequently guaranteed all deposits [1].
Good point, although this is also included in your link:
> This leaves about $90 billion in securities and other SVB assets in the hands of the FDIC, and an estimated cost of the failure to the Deposit Insurance Fund of about $20 billion.
This doesn’t make sense. You’re adding deposits (liabilities) to assets. $56bn deposits doesn’t mean $56bn of cash in a vault, it means $56bn owed to depositors.
That the bureaucracy can't avoid bailing out large connected depositors is precisely why the scope of FDIC coverage should be increased to all bank accounts, with a graduated rate of assessment due to the increased variance caused by large sums. "Just say no" is as impractical here as it is elsewhere.
FDIC thresholds are de facto meaningless and expose litigation risks for selective non-coverage.
Is there any downside to FDIC expanding policy to state "All deposits are covered, regardless of amount"? This is effectively already happening AND would contribute value-add safety and security to US banks. It would also create a level playing field for them, regardless of size, to have an opportunity to service customers they may not be backstopped to handle without outside investment or additional customers. Perhaps the only downsides would be stress tests and audits would need to ensure proper investments and diversification of products to avoid the risks of becoming a dangerously-narrow boutique bank.
> FDIC thresholds are de facto meaningless and expose litigation risks for selective non-coverage.
The first of these claims is false, the second is true only in the trivial sense that anyone can sue for any reason however baseless and even a completely baseless claim has some cost, and the existence of the limit may make people upset enough to file a baseless suit.
> Is there any downside to changing the policy to state “All deposits are covered, regardless of amount”.
Presumably Congress felt there was both when introducing the FDIC Act and again when revising it in 1991 to restrict the conditions in which the FDIC could cover deposits beyond the insured amount.
> This is effectively already happening
No, its not. The invocation of the systemic risk exception in limited cases is not the same thing, "effectively", as a general extension of FDIC insurance to all balances without limits.
> AND would contribute value-add safety and security to US bank. It would also create a level playing field for US banks, regardless of size, to have the opportunity to service customers of any size.
This contradicts what precedes it; if it was effectively already happening, doing it officially would change nothing of substance.
> if it [unlimited FDIC protection] was effectively already happening, doing it officially would change nothing of substance
Except that it's widely believed that depositor bailouts still only apply to "too big to fail institutions", and if this had been a smaller bank with less politically important depositors, the FDIC might have said too bad.
Furthermore the main point of my original comment is that making it explicit gives the FDIC a reason to assess insurance premiums on all accounts in proportion to their explicitly acknowledged risks (which are non-linear!), rather than continuing to collect smaller premiums under the belief that they only have to cover small accounts, while often ending up covering larger ones.
If those insurance premiums get too onerous for large accounts, then that creates a preemptive incentive to split up accounts and/or look at other non-bank financial custodians (decreasing FDIC's exposure either way).
"Gruenberg also revealed that $13.3 billion of the $18 billion allocated to protect Silicon Valley Bank, or nearly 74% of the funds used to assist the customers, were used to back deposits for a mere 10 accounts. "
74% !?!? to 10 accounts?
holy cow!
such a large proportion of the funds used to protect such a small number of accounts?
All Men are Created Equal, But Some are More Equal Than Others
From this article [0]:
... by the end of Orwell’s book, the Seven Commandments had disappeared from the wall, replaced by one lone Commandment:
All Animals are Equal
But Some Animals are More Equal Than Others
In Animal Farm, the animals who, in the end, defined themselves as “more equal than others” were the pigs — the same animals who had instigated and led the revolution.
So its the former, its funny because it’s a reference at all?
I’m quite aware it is a reference from Animal Farm, I didn't see how it was related and was wondering if there was more, or if the joke was funny aside from “unexpected orwell”
Is there a special privilege conveyed to the 10 large accounts over every other depositor that had more than $250k on account?
A better way of thinking about it would be something like: SVB had 170B (random estimate) in uninsured deposits. 13B of the uninsured deposits were from 10 accounts. So (13B / 170B) * 18B = 1.3B went to those 10 accounts.